Barratt Developments – improved January trading, but housing market very difficult to call

Barratt Developments, one of the UK’s largest housebuilders, has released half year results to 31 December 2022:

• Barratt delivered 6.9% growth in total home completions to 8,626 with adjusted profit before tax up 15.9% at £521.5m.
• Forward sales as at 29 January 2023 were 10,854 homes (30 January 2022: 15,736) at a value of £2,665.0m.
• The full year outlook depends on how the Spring selling season evolves but reservation activity improved in January, which if sustained would mean the group expects to deliver total home completions of between 16,500 to 17,000 in FY23.

Charlie Huggins, head of equities at Wealth Club, commented: “The housing market is very difficult to call right now.

There has clearly been a marked slowdown in housing market activity in the last six months. Faced with higher mortgage costs and soaring bills, it’s no surprise that new home buyers are exercising greater caution.

Barratt has responded by battening down the hatches, significantly reducing land approvals and placing restrictions on hiring and new site openings. This is sensible in the circumstances.

However, the picture is not looking as grim as it was back in the Autumn, following the disastrous mini budget. Despite rising interest rates, mortgage rates have fallen in recent months due to intense competition between lenders. And there is a growing sense that interest rates are close to peaking. If that turns out to be the case, confidence in the housing market could quickly return.

At this stage a range of outcomes are still possible. Barratt has seen early signs of improved trading in January but it’s still too early to say whether the housing market will suffer a mild downturn or a much deeper fall out, accompanied by substantial house price declines. In the meantime house builders like Barratt are operating in ‘wait and see’ mode.

But at least things are looking brighter than a few months ago, which is why Barratt’s share price has recovered significantly from its lows.”