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Housebuilder Barratt Developments warned this morning that house prices will have fallen by up to 20% by the end of the year compared with the peak of the market in July 2007.
Delivering an interim statement for the 19 weeks to November 9, chief executive Mark Clare warned the company's profit margins were likely to fall below 10% because of weak prices. "Market conditions remain exceptionally difficult", he said.
Clare refused to speculate on how much further prices could fall. "That's a very difficult question to answer. I don't know which way they're going to go."
Clare said the company will be forced to write down the value of its landbank again following a valuation due at the end of the year. Previous writedowns earlier this year put the company at risk of breaching its banking covenants and prompted a share price collapse.
Barratt subsequently renegotiated its banking arrangements with lenders and Clare said today that those arrangements are secure, despite continuing weakness in the housing market. "The covenants we've set for three years are not affected by the macroeconomic factors we've talked about," he said.
The company said visitor levels per site were down 23% on the same period last year, although activity had picked up in September, with reservations on homes averaging 233 per week, down 6.6% on the comparable period. Reservations on new homes were also down dramatically, averaging just one sale every three weeks per site, a 23% fall on last year.
Barratt also said it is talks with several potential joint venture partners interested in buying land in conjunction with Barratt as prices continue to fall, although it would not name them.
"It is likely to be someone who has an interest in buying into the market long-term," Clare said. "There are a number of people who are interested in the long-term outlook. If you can buy into strategic land at this point in the cycle there is the potential for good returns."
Despite those talks, the company said it is currently only investing in land where it is contractually committed to do so. It expects its total spend on land to be less than the £568m disclosed in early September and emphasised that land spend then "reduces significantly" in the next financial year.
Clark said that lower interest and government measures designed to kick-start the economy may not be enough to boost the housing market at a time when many banks remain reluctant to lend money to prospective buyers. Barratt shares were down 1.25p at 63.25p, a fall of nearly 2%, in early trading.
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