Berkeley group reminds markets house builders remain fragile
Despite confirming its full year earnings forecasts, FTSE 100 listed Berkeley Group tells investors that the outlook is fragile.
It says sales reservations are 35% below where they were last year and with the ‘elevated macro-economic and political volatility’ it’s probably no surprise that the Halifax told the markets this week that house prices have dropped at a rate not seen in more than a decade.
The annual general meeting
In 2100, house building group Berkeley has come through with an updated trading statement today. It comes through ahead of the annual general meeting (AGM) later on today, so it's got to deliver as much as it possibly can. So it's got something to discuss at the AGM. It says it expects to deliver pre-tax profits of at least £1.05 billion this year, despite the issues going on around affordability.
The company, it says, is fairly well placed. It's got a good pipeline. But nonetheless, it's reporting a 35% fall in reservations, reflecting what it says is the elevated macroeconomic and political volatility. Let's take a look at the chart for Berkeley Group, because this is a company with a very long chart that goes all the way back to pre-financial crisis time.
In fact, if we dial in some more detail here, you can see that the lows on the, what is the left-hand side of the chart here, for the COVID lows at 30.50, it seems that we have seen some recovery, although it is still trading within this band between 30.50 and 49.76. They're currently trading at 39.73. It has opened down a little bit with a little bit of pressure today, but it's been a negative week for the company.
We know about high interest rates. We know about this problem about affordability. And we also know about the direction of travel for house prices. Before we take a look into more detail about what's going on behind the covers, if we just quickly remind you what happened this week for the Halifax, it came through with its house price index. And it pretty much reflects what we heard with those 14-year low, or the fastest fall in 14 years we saw from the nationwide the previous week. And it pretty much reflects that year-on-year, prices down 4.6%.
This is far worse than expected. And the whole house building sector has been hit by price inflation. Price inflation is a really big issue here. It's wages, it's hard material costs. And then you go back to the affordability question, and it means that it's put some house builders in a very difficult position.
Some commentators are saying, we haven't yet seen the worst of this coming through. And the fact that there are hardly any houses on the market, relatively speaking, in terms of those that fail, albeit resale or new, at the moment at least, that is propping up house prices. We don't know how much further on down house prices go, remains to be seen. But at the moment, at least, Berkeley Group is doing well.
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