​​Housebuilder shares remain subdued thanks to weak outlook

​​​Housebuilder shares remain subdued thanks to weak outlook

​UK homebuilders are grappling with weaker demand due to the combined impact of inflation and rising interest rates. While firms are taking steps to fortify their financial positions, the sector is likely to face ongoing challenges until inflationary pressures subside and consumer confidence in the housing market is restored.

​The UK homebuilding industry has encountered a period of weaker demand in recent months, primarily attributed to the dual impact of inflationary pressures and rising interest rates. These factors have put a squeeze on household incomes, making it more challenging for potential buyers to afford new homes.

​The Bank of England (BoE) has been actively raising interest rates in an effort to curb inflation and maintain economic stability. However, this move has had an adverse effect on the housing market, as higher rates have significantly increased mortgage costs. As a result, many prospective buyers have been deterred from entering the market or have had to reconsider their purchasing plans.

​Given the prevailing economic conditions, homebuilders in the UK anticipate that demand will continue to remain subdued in the near future. Inflationary pressures persist, albeit with some recent easing, which further dampens the prospects for a swift recovery in the housing market.

​To navigate these challenging circumstances, companies in the sector, such as Barratt Developments, are taking proactive measures to build up their cash reserves. This strategy allows them to maintain financial stability during this period of weaker demand. Additionally, some firms have made the difficult decision to cut dividends in order to preserve capital and weather the current market conditions.

​Barratt Developments technical view

​The Barratt Developments share price is essentially range bound within the confines of its 2023 sideways trading range between 515.0 pence and 395.3 pence but since late-September has a downward bias.

​For much of the year the house builder’s share price has been oscillating around the 55-week simple moving average (SMA) at 436.2p below which it once again slipped at the beginning of October.

​Barratt Developments Weekly Candlestick Chart

​The fact that the share price managed to end last week above its 420.8p August low, despite it slipping through it during the week, could mean that it is trying to stabilize. For the short-term bulls to be back in control, though, not only the Barratt’s share needs to remain above its current October low at 407.5p but it also has to exceed Wednesday’s intraday high at 435.4p on a daily chart closing basis.

​If this were to happen, the 200-day SMA at 452.5p would represent an upside target, as would the 467.5p to 450.2p September price gap which could then get filled.

​Barratt Developments Daily Candlestick Chart

​For a longer-term bottom to be formed a rise and daily chart close above the September peak at 484.8p would need to occur.

​Failure at the current October low at 407.5p would engage the July low at 395.3p, a fall through which would have long-term negative implications for the Barratt’s share price.