It sounds banal to say it, but in the context of the escalating carnage in the UK property market, one can only marvel yet again at how quickly – and by how much – times can change. We know the UK house prices are sliding faster than Gordon Brown’s popularity ratings. We know some of the biggest UK housebuilders are in trouble. But the latest figures are still shocking…
UK annual house prices declined in June by the most since 1992 (a fairly grim and recessionary year) as banks reined in lending, according to Nationwide Building Society, the UK’s fourth-largest mortgage lender, reports Bloomberg.
The price of an average home declined 6.3 per cent from a year earlier to £172,415 ($343,278), the biggest drop since November 1992, after prices dropped 0.9 per cent from May.
Mortgage approvals, meanwhile, fell to the lowest in at least nine years in May and consumer confidence deteriorated to the lowest level in 18 years last month, added Bloomberg.
George Buckley, an economist at Deutsche Bank in London, who predicts values may fall at least 10 per cent this year, summed up the situation when he said: “The biggest driver in prices tends to be approvals and [Monday's] figure was quite shocking.”
Real-estate stocks had their worst performance in more than 20 years in the second quarter and Bank of England governor Mervyn King predicts “extremely weak activity” in the housing market.
Rents for new office leases fell for the first time in more than four years, says Bloomberg in a separate report.
The FTSE-350 Real Estate Index of 23 stocks slumped almost 24 per cent in the second quarter to the lowest since August 2004. The biggest decliner was Quintain Estates and Development, which plunged 58 per cent, it added. The index last performed worse in the fourth quarter of 1987, which included “Black Monday”, the biggest ever one-day decline of global stocks.
Tuesday brought news that Barratt Developments has followed Taylor Wimpey, now in the midst of a rescue plan to write down assets and raise up to £500m in fresh capital through a share issue – and it seems only a matter of time before others will follow suit.
Most analysts now think such writedowns are inevitable among UK developers anyway because of collapsing prices.
But some developers remain bullish. Berkeley Group, in effect, tapped its shareholders for money to back opportunistic expansion last Friday when it suspended a planned dividend programme.
Others are looking at more exotic joint venture arrangements that would shift new land purchases off their balance sheets.
Meanwhile, Barratt has turned its rescue refinancing into what the Daily Telegraph describes as a “coup”, persuading lenders to relax its banking covenants and help it ride out the property downturn. Unlike Taylor Wimpey, the paper noted, it has not had to ask shareholders for fresh equity in exchange for covenant waivers.
One might ask why the banks aren’t tightening covenants rather than relaxing them, but as FT Alphaville noted in Monday’s Markets Live discussion, “the theme going forward is clear — the banks will waive covenants for now, rather than pushing firms into receivership, but they want a rescue refinancing alongside”.
We still don’t think it’s going to restore much faith among increasingly horrified investors.
Related links
House builders battle negative sentiment - FT
Housebuilders – FT Lex
Taylor Wimpey revalues assets – FT