Housebuilder shares rise sharply as slowing inflation eases property market concerns

Homebuilder shares surged on Wednesday as official data showed signs of a slowdown in UK inflation.

UK housing stocks were under pressure in 2023 from rising interest rates and consumer tightness, but signs that the economy appears to be turning around have put them on track for their best day of gains since 2008.

While consumer price inflation, which fell to 7.9 percent in June, benefited housing stocks, companies in the sector still face hurdles.

Persimmon shares are up 7.65 percent or 83.50p today to 1,175.50p, while Barratt shares have increased by 6.25 percent or 26.50p to 450.80p.

Taylor Wimpey shares are also doing well, up 6.01 percent or 6.55p to 115.45p, while Bellway shares are up 5.76 percent or 120.00p to 2,204.00p.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Homebuilders are among the winners in early trading following a strong performance yesterday after data from Kantar showed food inflation slowing.

“Sentiment around homebuilders depends on the direction of inflation and interest rates, and concerns that affordability will be wiped out as mortgages become much more expensive, so any signs that homeowners could show more resilience are welcome.”

Earlier this month, Barratt warned it may build at least 20 percent fewer homes this year.

From 17,206 in the year to the end of June, Barratt expects to build between 13,250 and 14,250 new homes this fiscal year.

It said last week: ‘Looking ahead, we recognize that there are significant macroeconomic headwinds, particularly continued inflation and a higher interest rate environment, which will affect economic growth, employment, consumer confidence and spending in the UK.’

Last month, Bellway said volumes were expected to fall this year and into 2024 as bosses warned of the potential further impact of cost-of-living pressures and higher interest rates.

But the FTSE 250 company told shareholders it reported a “continued improvement” in demand in the spring, compared to a “challenging” one late last year.

Consumer prices in the UK are still rising faster than in most other rich countries.

Borrowers are still hammered by higher interest rates, and at the time of publication, markets are split on whether the base rate will peak at 5.75 percent or 6 percent in late 2023.

On Tuesday, Halifax raised its mortgage rates by as much as 0.6 percentage points, with several of its fixed products now exceeding 7 percent as lenders continue to price in the likelihood of further rate hikes.

Many potential buyers, especially first-time buyers, are facing an uphill battle amid high real estate prices and higher mortgage interest rates.