Caution over housing recovery

Published:  26 August, 2009

LONDON: Booming shares prices for building companies masks underlying weakness in the construction sector, warn city analysts.

John Messenger, an analyst at RBS, said in the Financial Times: "It's hard to see what will get the [housing] market moving."

"Interest rates can only really go up from here, and confidence-wise people will be paying more on existing mortgages so they won't feel the benefit of the one-off drop they've had over the past year,' he said.

House builders are acting cautiously, said the Financial Times. "An industry that was putting up almost 180 000 homes in 2006 might not complete a third of that figure this year. Not even Taylor Wimpey, which vies with Barratt for the title of most prolific builder, expects that situation to change any time soon," the paper said.

Many analysts said that there are tough times ahead for most house builders. Although builders have concentrated on finishing and selling nearly completed stock, many have all but abandoned the expensive business of opening up new sites, which necessitates building new roads, sewerage systems, and low-margin social housing units.

The FT report said that any significant further climb in share prices will require house prices to start rising again, but "The industry is not holding its breath."

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