Residential developers see strength in the housebuilder and new homes market

Housebuilders have reported increased sales and rising house prices for the end of last year, but is this the end of the housing slump or is it wise to be cautious over what will happen in 2010?

The optimism in the market place has been gathering momentum, with Taylor Wimpey announcing an operating profit for 2009 of just over £40m. Pete Redfern, Taylor Wimpey’s chief executive, has been quoted in the press as saying that he believes the UK housing market has strengthened “significantly” over the past year. The company has also described UK trading as “encouraging” in the first two months of 2010, with continued improvement in visitor levels, sales rates and cancellations. Persimmon are another large developer restoring some confidence in the New Homes market after announcing a pre-tax profit of £78m. The company was reported to have made a huge £780m loss in 2008, but an increase in demand and prices in the second half of 2009 is seen to be responsible for the improvement in its full-year figures.   

It is without a doubt great to hear that the long-struggling developer sector is starting to see a return to profit, although most developers remain cautiously optimistic, with new-build sales still struggling with down valuations by the mortgage lenders. This disturbing trend has caused developers to lose many sales and many first-time buyers have been unable to get their foot on the housing ladder. 

Persimmon is one of the many housebuilders who benefit from the first-time buyers government funding, with 2,700 of its plots receiving funding from the scheme, and this has been a positive way of supporting more plot sales. Persimmon’s chief executive, Mike Farley, has said that the prices for their new homes had held up, with a rise of 1 per cent in the first two months of 2010 , whileplot sales were up 7 per cent on the same period last year. But as for predictions for 2010, Mr Farley said that he expected the prices to rise by between 2 per cent and 3 per cent over the course of 2010 – gently optimistic some would say. 

Barratt Developments and Galliford Try reserve their judgment as to whether the recent rise in demand would continue into 2010. Barratt has said that it had cut its losses for the last six months of 2009 from £678.9 million to £178.4 million after rises in their new homes prices and sales. Galliford Try, a smaller developer largely building in the South East, has reported a similar trend, with their half year pre-tax figure of £6.4 million up from a loss of £26.9 million in the six months before. However, Galliford has expressed concerns that government funding for affordable housing, which accounted for a fifth of its completions in the last six months of 2009, will fall away as a result of housing budget cuts. Will the government cuts further damage the recovery from the biggest downturn most of us can remember?

Both Barratt and Galliford have made the suggestion that Santander’s welcome move to increase its loan limit for first-time buyers to 90 per cent for new properties is a sign that the mortgage market is set to improve in 2010.  So are we ready for a recovery in house prices? As mortgage availability improves and buyers confidence is restored there will be strong demand for new properties, particularly as many developers have slowed the pace of their building. News like this from large developers could spell the start of the long-awaited recovery of the UK housing market.