Chertsey-based developer Crest Nicholson (CREST) released an unscheduled trading update warning that full year earnings would be up to a third lower than its previous forecasts due to the tough market for new-build housing.

The shares fell as much as 14% to 167p before stabilizing at 177p, sparking a sell-off across the rest of the sector and sending Taylor Wimpey (TW.), Persimmon (PSN), Barratt Developments (BDEV) and Berkeley Group (BKG) to the bottom of the FTSE 100 with losses of between 2% and 4%.

WHY HAS THE COMPANY WARNED?

At the beginning of June, the firm reported sales of £283 million for the six months to April, a drop of 22% on the same period a year ago, with sales per outlet of 0.54 per week against 0.72 a year earlier.

First-half pre-tax profit was £20.9 million, with the firm forecasting full year profit in line with the consensus of £73.7 million ‘assuming trading conditions remain stable in the second half’.

Scroll forward a couple of months and instead of a sales rate of 0.50 units per outlet per week, as the company had budgeted, sales in the seven weeks to mid-August have been just 0.25 units, ‘representing a deteriorating trend’.

‘Against a backdrop of persistently high inflation and rising interest rates, trading conditions for the housing market have worsened during the summer of this year,’ the firm says.

‘While pricing has remained resilient in a market with limited supply and few distressed sellers, the economic uncertainty is deterring prospective home movers.

‘Additional mortgage borrowing for those looking to upgrade or for those with low levels of equity, notably first-time buyers, has become significantly more expensive with no Government support (following the end of Help to Buy) now in place to cushion this impact.’

The firm goes on to say it doesn’t expect to see any material improvement in the market before the end of October, so pre-tax profit is likely to be around £50 million or roughly a third less than previously forecast.

ASKING PRICES FALLING

The gloom around the sector was exacerbated by the release of the latest Rightmove (RMV) house price index showing average new-seller asking prices fell by 1.9% to roughly £365,000 between July and August, a much bigger fall than usual for this time of year, and by 0.1% compared with last August, marking the first annual decline since 2019.

The number of agreed sales is down 15% on 2019, although record rents and a lack of rental properties together with a slight dip in mortgage rates means the first-time buyer market for two-bed or fewer properties, which tend to be priced around £220,000, has held up slightly better than the average.

The biggest decline has come at the top of the market, where the average asking price has dropped by 3.4% or more than £23,000 from around £688,000 to less than £665,000 in the last month.

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