Bovis Feels The Squeeze

The credit crunch continues to have wide-reaching effects. Home builder Bovis Homes has warned of sharp price falls and has admitted that in its crucial autumn period sales were severely impacted as confidence fell in both buyers and sellers.

Company chief executive Malcolm Harris forecast that the average selling price of a new Bovis Home will end up 3% lower in 2007 than in 2006 – a fall of around £5,500 on last year’s figure of £184,000. He also reckons that the number of homes sold through the year will be slightly down, which will result in profits being lower than previously expected.

It is unlikely that Bovis will be the only housebuilder affected in this way and more statements of bad news are expected from other housebuilders in coming weeks and months. Shares across the sector fell and Credit Suisse cut its rating on Taylor Wimpey, Barratt and Persimmon. However, with some irony, Bovis shares gained some ground as some had expected even worse news.

Recent surveys, forecasts and data have indicated that the housing market is heading for a slowdown and pricing correction. Wimpey and Barratt have noted falling demand, and shares in the sector have tumbled this year. The root cause blamed for the problems is the US sub-prime market, and Harris pointed the finger there and at the freezing of the credit market in its wake, which has had disastrous consequences for Northern Rock.

Harris said: “Recent events in the financial markets have adversely affected consumer confidence, resulting in sales being lower than anticipated during the key autumn selling period. At the half-year we said the outlook would depend on the autumn and during that period we have had Northern Rock and the confidence hit from the subprime market woes generally.”

Despite the bad news, and mortgage rates still on the rise, Harris remained optimistic about the housing market. “Looking ahead the mid- and longer-term supply and demand dynamic remains very attractive in the housing market. In the short term, sales will reflect this recent decline in consumer confidence, in particular as it relates to major consumer purchases.