With three major house builders releasing updates, we look at the health of the housing market.
People are constantly looking out for the fabled green shoots that will herald a house price recovery. In the week that three house builders released updates, are we seeing any, or is the tumbleweed still blowing across the arid wastes of the property market?
Persimmon
First up, on Tuesday, was Persimmon (LSE: PSN), with a trading update ahead of interim results for the six months ending 30 June. Total sales came in at £625m (compared to £988m for the same period last year), which was ahead of earlier expectations, and sales in the second quarter have, apparently, picked up further and are currently running ahead of 2008 figures.
On top of that, Persimmon has brought its debt down from £906m in June last year to a credible £495m, giving a gearing figure of around 30%. It sounds like this improvement is going to carry on into the second half too, with forward sales standing at around £700m, up on the £650m figure this time last year (and well up on January's £458m).
Barratt
The second of the big builders to release news this week was Barratt Developments (LSE: BDEV), whose financial year ended on 30 June. Today's update tells us that completions are "in line with expectations". Like Persimmon, Barratt has got its debt down, though not quite to the same extent -- at £1.28b, it's about £370m down on June 2008.
Barratt's forward sales stand at around the £460m mark, which is still some way short of the June 2008 figure of £698m, so it seems to be lagging Persimmon in the recovery stakes.
Redrow
The last of the three to update us this week was Redrow (LSE: RDW), again with a full-year trading update released this morning. The picture was again similar, with the last six months having stabilised, though forward sales as of 30 June are slightly down on the 2008 figure.
Redrow's debt also appears to be under control -- standing at £215m in June, it was quite a bit down on December's £270m, and beat the company's target of £225m. Redrow has committed banking facilities of £425m, but its target for 2010 is to get the debt figure down further.
Redrow gave very little information on actual turnover or the value of forward sales, so it's hard to compare it with the other two, but it has warned that the major obstacle to a recovery is the chronic shortage of mortgages.
The bottom line?
What none of this week's statements has mentioned is profits, and that's due to the tried-and-tested reporting practice of keeping quiet about the bad stuff.
Analysts are expecting a £9m pre-tax loss from Persimmon for the full year to December 2009 (which amounts to a 3p per share loss), recovering to a profit in 2010 and positive earnings of almost 3p per share. Even that recovery would put today's 390p share price on a P/E of over 130, so it's going to take a couple of years yet to get back to reasonable profits.
Barratt's outlook is tougher. How this year's bottom line will compare with the expected loss per share of 28p is something we won't know until the full results are out, but there was nothing in today's release to suggest anything unexpected, and a similar sized loss is expected for next year too. It's not really surprising then, despite Barratt's larger turnover, its market value is a lot lower than Persimmon's.
Redrow has much smaller turnover than the other two, but is still penciled in for a 26p loss per share for this year and a 17p loss for 2010, again suggesting that Persimmon is performing the least badly of the three.
House prices?
But what about house prices? Persimmon tells us it has seen an underlying fall of 4% in the last six months, but that the rate of fall is slowing and prices are stabilising. Similarly, Barratt has seen average prices falling by 14% over the full year, with the biggest falls coming in Autumn 2008, and prices stabilising in recent months. Redrow also talks of prices stabilising.
I think it's still way too early to call the direction of house prices, myself. On the one hand, the builders are telling us that mortgages are still scarce, and the Halifax house price index has suggested a further 0.5% fall in June. But on the other hand, Nationwide has been painting a rosier picture and has started offering a 125% mortgage to existing customers who are in negative equity.
What to you think of the house price chart? Will it turn out to be U-shaped, W-shaped, or perhaps shaped like a cube but with the corners on the inside? Feel free to post your thoughts below or on our 'Property - Markets and Trends' discussion board.
More on the state of the economy:
