FTSE 100 Housebuilders Spring into the Green Despite House Prices Declining

FTSE 100 housebuilders edged into the green this morning despite house prices declining according to the latest Halifax house price data. According to the nation's largest mortgage provider, the average house price dropped another c.£1,200 last month to £278,601. On an annualised basis, prices fell 4.7%, although this is still £39,400 higher than pre-pandemic levels.

As such, investors alike have taken the latest data rather positively. That's because just like Nationwide's data on Monday, Halifax's drop came in better than consensus estimates on a monthly (0.4% vs 0.8%) and annualised (4.7% vs 5.0%) basis.

While house prices continue to drop though, fears of a much worse market have been alleviated for the time being. And with mortgage rates coming down and affordability recovering, John Choong, Senior Equity Research Analyst at InvestingReviews said:

"This week's housing market data leaves some room for optimism as both prints came in better than expected despite their falls. Although mortgage approvals from August will dampen sentiment about a potential recovery, a bottom could very well be in as the gap between incomes and house prices begins to tighten. More encouragingly, major lenders are also now offering sub-5% rates for an increasing amount of mortgages.

Even though higher oil prices could see September's CPI inflation surprise to the upside, it could be a one-off given oil prices have now fallen to approximately $84 per barrel this week after OPEC+ opted to stop cutting production for the time being. This should see swap rates and subsequently, mortgage rates come down even more in the coming months.

Still, a sharp rebound remains out of the question in the near term as rates remain restrictively high versus their recent historical averages. But over the long term, the fundamentals look good for housebuilder shares."

Echoing that sentiment is Justin Moy, Managing Director at EHF Mortgages. He said:

“Mortgage Lenders are still offering low deposit mortgages, and many have improved their affordability calculations in the last few weeks. Housebuilders such as Persimmon will benefit most, given they can tweak the pricing on plots and change the mix of properties built to accommodate more affordable housing options, particularly for first-time buyers.” As such, it's no surprise to see Persimmon being the biggest gainer among its FTSE 100 housebuilder peers today.

That said, Moy is still cautious about a potential rebound happening so soon, stating:

"A combination of factors has certainly helped slow down the decline of property values across the UK. But with the usual time lag on land registry data, it's hard to say we are over the worst just yet. A rebound feels like a year away at least".

Still, there are signs of life in the market, according to Gary Bush, Financial Adviser at MortgageShop.com, who also added his opinion on what housebuilders need to focus on in order to fill their order books more effectively:

"We are still seeing good demand for property purchases, with numerous house-hunters all bidding up prices on the same property, and with the UK mortgage lender price war still in action this will inevitably continue fuelling this uptick. 

Nonetheless, our personal opinion is that UK housebuilders need to focus on providing good value for money for their sold units — nearly all purchasers of new properties we subsequently speak to a few years later, when renegotiating mortgage rates, speak of feelings that they paid to much for their property when they purchased it. Should there really be a clear and large difference between the price of newly built properties and preowned properties in the UK - surely the idea of building more homes is to deal with the growing need for more homes, not to attempt to push values even higher for new stock."