Housebuilders look set for a series of fresh withering writedowns, and falling interest rates will not offer relief. Merrill Lynch has warned that falling house prices and land values could translate into writedowns of £9.9bn for the UK's quoted housebuilding sector, with a further £1.4bn of goodwill writedowns. Include writedowns and impairments already announced, and the total figure is £13.3bn - more than the £11.3bn of pre-tax profits reported by those companies in the last decade.
Wednesday's trading statement from Redrow was not expected to contain any particularly nasty shocks - Redrow had already written off 43 per cent of its landbank. But shares fell 7 per cent on a 45 per cent fall in year-on-year reservations with the company averaging just 38 sales per week.
The dearth of private sales means housebuilders are increasingly reliant on social housing. However, its defensive merits are also in doubt following a which has seen £27m worth of social housing contracts cancelled due to funding constraints. As a result, shares in all the main housebuilders fell between 2 and 7 per cent on Wednesday, with analysts predicting further falls as the housing market worsens.
"Against this backdrop, cutting rates will not make a blind bit of difference," says Alastair Stewart, analyst at Dresdner Kleinwort. "We believe the survival of many developers hangs in the balance, and a number of larger quoted and private builders are facing extreme cashflow pressures."
As sales dwindle, housebuilders continue to offer aggressive discounts and incentives as they compete for the few buyers in the marketplace. "This is sparking a spiral of price competition and ironically putting off potential buyers who can foresee even lower prices ahead," adds Mr Stewart.
