House prices 'will drop for three years'
Britain's residential property market faces three years of falling house prices, according to the investment bank Goldman Sachs.The Wall Street giant warned house prices could fall 6pc this year and 8pc in 2009 on the back of plummeting sales as buyers are scared off by higher mortgage costs.
It came as the Bank of England said estate agents and homebuilders are making 'sizable' layoffs after sales of houses slumped by more than 50pc over the past year. The central bank fears further 'significant falls' in house prices are probable.
Bearish commentators, like Roger Bootle at Capital Economics, are forecasting a 30pc drop in prices over the next three years.
Goldman said: 'We believe the sharp contraction in the mortgage availability gas accelerated the house price correction and as a result, the downturn should be shorter than in the early 1990s.
'However, we believe that this is highly dependent on lending banks returning to the market with competitive mortgages.'
Goldman recons Barratt and Taylor Wimpey are the two house builders most likely to need a capital injection, 'resulting in significant dilution of existing shareholder stakes'.
The bank also warned investors to avoid companies with high borrowings. Barrett is shouldering debts of £1.7bn after buying rival Wilson Bowden at the top of the market early last year, while Taylor Wimpey has loans of about £1.9bn.
High debt levels and slowing sales has ignited talk that builders may need to strengthen their balance sheets with rescue rights issues or debt for equity swaps.
But Goldman believe any fund raising moves 'may not be well supported' by the City because of uncertainty surrounding the housing market.
Goldman`s downbeat assessment of the market sparked another wave of selling in the house building sector, with Barratt down 10p at 88½p, Taylor Wimpey falling 5½p to 68p, and Persimmon off 33½p at 379½p.
UBS analyst Mark Stockdale also took aim at Redrow (down 29¼p, or 17.5pc, at 137¾p), saying it risks breaching banking covenants and may have to write down the value of its lank by 50pc.
He added: 'through Redrow is focusing on cash generation, an equity issue cannot be ruled out in our view.'
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