What do housebuilders do in a recession?

[donttellmehesalive]

I'm currently renting and keeping an eye on the market in three different towns.

In all three, there are big new estates of new houses by five different housebuilders - big national companies.

I can see that they haven't sold a single house since September, not in any price bracket. They are now offering incentives such as 'keyworker discounts' and free stuff and 'contributions towards your mortgage for three years.' But every time a new house is released, it's for a higher price than the last identical house.

I suppose I was just wondering what their thinking is. Will they slow building and leave houses empty rather than reduce? Will they reduce eventually?

I'm just being nosy. I don't want a new build. But genuinely interested in why prices are increasing in the current climate, and with zero sales.

F

How can you tell when they last sold a house? I need to buy in next few months (moving for work) and where I am looking is mainly new builds also by several different companies. I've seen mortgage contribution offers too but haven't noticed them increasing house prices. I haven't got beyond looking at Rightmove yet.

They tend to "build to the sales rate" - so they massively slow down on their construction, and just drip feed the new houses into the market. Generally they'd rather sell fewer homes at a higher price and preserve the £ per sq ft they are achieving, than slash prices - and they'll offer incentives like paying bills for a year, giving you fancy carpets etc because that doesn't impact the Land Reg price paid, and therefore they can still say to financers they are achieving £XX/sq ft values.

They can do this (particularly now, compared to 2008) because the majors are cash rich businesses, low levels of debt, work with lots of contractors so they won't have tons of staff sitting around doing nothing. A 6 month "pause" until the market picks up is manageable. And new build does tend to hold up better in terms of transaction volumes in a recession than the rest of the market, as there's better stock availability, no chain complicating things, and more cash buyers, so less worry about the increasing cost of debt.

There will be a some developers (generally the smaller ones, but could start to affect the big guys if the downturn lasts longer) who just want to get units sold, close up a site and move on - say they've sold 80 homes of a 100 home site, but the sales rate has dropped from 1 per week to 1 per month, and they just want to close up the sales office, cut the marketing costs etc. It that kind of case you might get price reductions, but actually the quicker & cheaper way for them to sell is to a bulk investor like an institutional landlord, or flip the tenure to affordable and sell to a housing association. These bulk sales will typically be at 70-90% of open market value, but those homes would never even be marketed to the average consumer.

The increase in pricing will be a reflection on the increase in raw consumables and a wish to keep their profit margins intact. We're seeing the same on our estate with newer houses (with less specs as standard) being priced at 10% more than ours was marketed for

They are unlikely to reduce the sticker price publicly (as that impacts on all their other houses) but you're in a good position to negotiate extras and contributions if their properties aren't selling.

They’re offering deals such as stamp duty paid or contributions to bills for 2 years, so they can keep the prices where they want. They won’t release a new phase of a house style on a development until they’ve sold the ones they have finished/nearing completion, so there’s so reason for them to drop the price really. They can sit on properties for as long as they want but there are deals to be made on other areas, as PP have said.

TBH here in the SE, nothing seems to have slowed down much. Estate agent in the family has said it’s mostly just weeded out the time wasters, serious buyers here are still buying and selling.

I'm not sure how you're checking what's sold but if you're checking on something like Rightmove sold then that's usually about 3 months behind so wouldn't be showing any sales more recent than September anyway I don't think

They focus more on sending their team to do extensions etc, rather than new builds.

Their costs have rocketed, especially energy, they will want to protect margin so will slow building IF it suits them. Remember most of them don't directly employ people, it's all individual trades.

Additionally depending on where you are houses are still selling due to foreign buyers, there has been a massive influx of people from Hong Kong who have plenty of money.

I've often wondered this. I've noticed that the building sites near us are offering lots of incentives right now. Still going up though, haven't tracked closely enough to see how they're selling. I watched our estate like a hawk out of nosiness (finished last year), it was fascinating the rate at which they sold, I wondered where they were all coming from!

Really interesting comments, thanks.

To pp asking how I know - I follow sales on their individual sites. Most have interactive maps of each site, showing plots that are available or sold or 'coming soon.' They change colour as the status changes. Plenty of 'coming soon' have changed to available. On occasion an 'available' has changed to 'sold' but changed back to 'available' a couple of weeks later. I suppose I'm relying on the builders keeping those sites up to date but they were certainly selling well until September.

Also, if you go into the sales offices, the same plots (plus a few more) are available now as were available months ago.

I hadn't thought about raw materials going up. I did wonder if they were putting the prices up so that they could then make generous offers. Seems like they're hoping to just ride it out then.

Also noticed that many of the 'coming soon' plots have changed from big 5 bedroom detached houses to cheaper 3 and 4 bedroom styles on one of the developments.