Redrow downturn piles pressure on housebuilders

Redrow, a leading housebuilder, saw a fall in sales and prices in the first half of its financial year and warned that the health of the market now depended on the fragile state of consumer confidence.

The company saw an 8 per cent drop in the average selling price of properties in the first half, it reported in a trading update yesterday. Legal sales completions edged down 2 per cent to 2,077.

Redrow shares ended down 4 per cent at 515p yesterday, and its statement knocked sentiment in the sector, with shares in Bellway and Alfred McAlpine losing 3 per cent. However, the broader lending and economic data out recently has pointed to a pick-up in prices and activity in the housing market.

Redrow said a change in the mix of its product was to blame for the drop seen in selling prices. In the six months to the end of December 2005, the average selling price fell to £163,000, from £176,700 in 2004. The company said it had seen fewer sales from its inner-city apartment division, In the City, because of developments becoming available for sale in the second half in the current financial year. Also, its budget Debut range had been introduced this time.

Redrow's In the City properties tend to be more expensive, especially in 2004 when the company was selling flats in a development in the London Docklands. In the current financial year, more apartments should be coming through in the second half.

The company said the autumn had shown a "normal seasonal upturn". Forward sales at the end of December were strong by historical standards at 1,816 units, even though the 2004 had seen a better position.

Neil Fitzsimmons, Redrow's chief executive, said the market in the autumn had been "challenging and competitive", with the industry having to offer more incentives to house buyers. But he noted that data on mortgage approvals numbers had been positive and national pricing figures were stable.

"We are reasonably encouraged for spring but it all depends on consumer confidence. On how people feel about taking on new commitments, a small interest rate cut would be helpful," he said.

He said next year there should be a "gradual" rise in prices but there was unlikely to be a strong take-off for the market, after the soft landing seen last year.

Transaction levels for 2005 were expected to have been at their lowest for 30 years. Redrow said its high-quality landbank and product range meant it was well-positioned to benefit from any improvement in market conditions.