Stock market moves indicate new house prices could fall up to 20%

Investors have ‘priced in’ falls in land and new home values

Cairn’s shares were trading at close to 67 cent on Tuesday, compared to €1.22 at the beginning of the month. Glenveagh’s stock was priced at 47.45 cent, down from 77 cent on the first day of trading in March

Cairn’s shares were trading at close to 67 cent on Tuesday, compared to €1.22 at the beginning of the month. Glenveagh’s stock was priced at 47.45 cent, down from 77 cent on the first day of trading in March

 

Investors believe the Covid-19 crisis will slash new house prices by between 15 per cent and 20 per cent, according to one stock market analyst.

A note from Colin Sheridan, analyst with Irish brokers Davy, says that the two Dublin-listed house builders Cairn Homes and Glenveagh Properties are resilient enough to withstand the pandemic in the short term.

Mr Sheridan says the sharp fall in both companies’ share prices since coronavirus struck indicates that the market has factored in “declines in house prices of maybe 15 to 20 per cent”, along with a halving of land values.

Cairn’s shares were trading at close to 67 cent on Tuesday morning, compared to €1.22 at the beginning of the month.

Glenveagh’s stock was priced at around 47.45 cent on Tuesday, down from 77 cent on the first day of trading in March.

Both companies’ shares had recovered from their Monday closing price.

Mr Sheridan acknowledges that it was difficult to predict the pandemic’s impact on the economy and housing market. Nevertheless, he points out that the forward sales that Cairn and Glenveagh had agreed with buyers early this year provided a “reasonable amount of comfort” for both companies’ backers.

As of March 2nd, Cairn had agreed to sell 853 homes so far in 2020 and believed 701 of them would be fully built this year. This was more than half the sales that the company had targeted for 2020.

By February 28th, Glenveagh had agreed 475 sales this year, and intended completing all of them within that time. That figure was 47.5 per cent of the company’s 2020 sales target.

Appointment

The builders have cut buyers’ risk of infection by allowing homes to be viewed only by appointment. “This approach should see continued sales but at a lower rate than at the start of the year,” Mr Sheridan says.

Building is continuing on their sites at present. However, the analyst warns that any downtime could hit sales this year. He notes that any time lost on construction would be difficult to recover.

He also points out that both companies are in a strong financial position. At the beginning of the year Glenveagh had €55 million in cash. Cairn had €91 million in debt, but this amounted to just 12 per cent of equity.

“Both companies have significant headroom if they are required to take on future debt,” says Mr Sheridan.