Trading updates next week from housebuilding giants Persimmon and Barratt Developments will focus attention on the UK property market and the outlook for the year ahead.
After a subdued autumn season, the pre-Christmas performance is likely to have been held back by the adverse weather during what is already a quiet time for the housing market.
Nationwide Building Society delivered some cheer when it reported a 0.4% rise in house prices in December – the first monthly hike since May. However, it said house prices were expected to drop in the first half of 2011 and the market will be keen for the builders’ views, given the recent swathe of gloomy predictions.
Charles Church owner Persimmon will be first in the spotlight with its update on Monday. The group was among those to warn it failed to experience the traditional autumn pick up in the housing market when it last updated in November.
However, it assured investors by reporting that sales volumes had remained stable with prices and margins holding firm despite the wider market troubles.
Persimmon said it was on course to increase sales by 10% in 2010, although it was under no illusion of the challenges ahead with mortgage lending constraints and the impact of Government spending cuts.
Fellow builder Barratt Developments, which updates on Wednesday, described the same trends during the autumn and echoed sentiments over the hurdles that lie ahead.
In spite of these concerns, analysts at Panmure Gordon have both Barratt and Persimmon on “buy” recommendations and said fears for the sector were overdone.
They said: “We believe 2011 will be a challenging year in the housing market with low levels of housing transactions, similar to 2010, and modest house price deflation. However, housebuilders are in a much stronger position compared to their position in 2007.”
Panmure’s report predicts room for profits growth in 2011, thanks to efforts since the 2007 downturn to rein in costs and stock levels, acquire sites at good prices and with housebuilders having already taken hefty write-downs in recent years.