Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: “Housebuilders are having a tough time as the Middle East conflict and shifting mortgage rate expectations are weighing on buyer demand.
“Following a string of operational missteps, housebuilder Vistry has been offering steep discounts on its houses to boost sales and bring more cash in the door.
“The new CEO is working hard to get his house in order, with land purchases being scaled back and unfavourable contracts being renegotiated.
“But, despite the recent downgrade, the full-year underlying pre-tax profit guidance still looks too optimistic to us. Fellow housebuilder Barratt Redrow is sitting on slightly steadier foundations. Increased sales volumes and a growing contribution from larger, higher-value homes helped full-year underlying pre-tax profit land in line with market forecasts of £560 million.
“However, the Middle East conflict is already pushing up building and material costs, and that’s expected to continue this year. If it leads to higher, more broad-based inflation, we could also see potential buyers become more cautious about signing on the dotted line for a new home.
“Barratt Redrow’s valuation has fallen sharply since the Iran conflict began, which we think underestimates Barratt’s long-term prospects. But it could be a while before macroeconomic conditions turn more favourable, so potential investors will need plenty of patience.”
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