Market report

Price data and profit warning hit house builders

Crest Nicholson’s warning hit the market

Shares in house builders took a hit after Crest Nicholson issued a profits warning on the back of weak price data from Rightmove.

Higher mortgage costs and the end of the Help to Buy scheme have sent a shiver through the sector and is also spreading to the construction industry.

Property website Rightmove said average asking prices fell by a hefty 1.9% in August, marking the largest monthly decline since 2018.

House builder and FTSE 250 constituent Crest Nicholson said trading conditions have deteriorated in the last seven weeks and guided the market to expect adjusted profit before tax for the year of around £50 million, a significant shortfall on previous guidance of £73.7m.

AJ Bell investment director Russ Mould, said: “Sales of new homes have plunged alarmingly and, while not all developers in the space are created equal, the news, allied to Rightmove’s latest reading on the property market, has had a knock-on effect on share prices in the rest of the sector this morning.

“The £7,000 drop in the average asking price observed by Rightmove in the last month, allied to a big drop in transaction volumes,  is the kind of statistic to make estate agents distinctly uneasy.

“The scale of Crest Nicholson’s warning may come as a shock to investors given it reported its first half results just a couple of months ago and this hints at the speed and scale of the deterioration in the market.

“The one compensation for shareholders is Crest Nicholson is at least sticking with its planned full year dividend payment for now. However, its gloomy update will have set the market on alert for further warnings from its industry peers.”

Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, commented: “Today’s profit warning from Crest Nicholson suggests rising interest rates and higher mortgage costs are really starting to bite.

“Crest Nicholson has seen trading conditions worsen significantly over the summer months. This means group pre-tax profit for the year is expected to come in around a third lower than previous expectations.

“The cost of borrowing has rocketed, and this has led to fewer homebuyers upsizing and to fewer first-time buyers. The end of the Help to Buy scheme has compounded these pressures, making it even harder for first-time buyers to get onto the housing ladder.

“The housing market is on very shaky foundations. Although inflation appears to be moderating, the Bank of England is expected to tighten the screw further in the coming months. As such, it seems unlikely that trading conditions for Crest Nicholson or its peers will improve any time soon.”

The sector struggled to shake-off the gloom and the FTSE 100 index closed down 4.61 points, or 0.1% at 7,257.82. The FTSE 250 ended 1.1% lower.

Taylor Wimpey, Persimmon, Berkeley, and Barratt Developments closed down 4.2%, 3.4%, 3.1%, and 2.5%, respectively.

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