Customer interest is returning to the UK housebuilding sector, but investors should temper their expectations for the time being, Barclays warned.
There were some positive takeaways from the latest earnings season, including a surge in web traffic and a marked increase in sales team bookings.
But “it is far too early to take meaningful comfort from this,” said Barclays analyst Emily Biddulph, especially since “some sequential improvement was almost a given”.
A noticeable improvement in interest-to-sales conversion rates would need to be seen before celebrations can begin.
“We think we should always see some seasonal sequential pick-up at this time every year; we would be concerned if there were no signs of improvement versus pre-Christmas at all, especially given that sales rates were close to 70% down year on year for December,” stated Biddulph.
Major UK housebuilders Barratt Developments PLC (LSE:BDEV), Taylor Wimpey PLC (LSE:TW.) and Persimmon PLC (LSE:PSN) are “being rational on pricing”, although Biddulph warns that overdoing incentive levels could cause pressure on headline pricing levels.
Although Barratt Developments has remained tightlipped on its year-to-date performance, the residential construction firm raised the prospect of a Spring-trading bump failing to materialise in its 11 January trading update.
On the plus side, Barratt is seeing price deflation on raw materials, most notably timber, while brick, steel, and plastics prices have also stabilised.
Persimmon took a similar tone, noting lower labour and materials costs, although Taylor Wimpey expressed caution while warning of overconfidence, particularly given ongoing risks to Russian timber supply and UK domestic energy costs following the withdrawal of government support in the sector.
“While we continue to see value across the sector and think worst-case scenarios are overdone, in the short term we’re conscious that one swallow does not make a spring,” said Biddulph.
Barclays maintains a neutral forecast on the UK housebuilding and construction sector.