Another week in the housing slump: 4,000 jobs gone and a 45% drop in sales

Another week in the housing slump: 4,000 jobs gone and a 45% drop in sales

The severity of the housing downturn was underlined yesterday when Persimmon, one of Britain's biggest home builders, said it had cut 2,000 jobs, bringing the total jobs lost across the industry to more than 4,000 in the past week alone.

Persimmon said the first half of the year had "undoubtedly been the most challenging period" in the company's recent history, as banks and building societies have curbed lending, the number of buyers has dried up and house prices have begun to fall.

The job cuts will add to mounting fears that Britain could be facing recession. City analysts this week said the credit crunch could cause a worse housing slump than the crash in the early 1990s.

Few parts of the market are immune, as the upmarket estate agent Savills reported a 45% drop in central London sales over the past six months compared with the first half of 2007, and a 7.5% fall in prices. Savills said the market for expensive properties in the countryside had begun to follow, possibly reflecting job losses in the City, although properties over £5m were proving more robust. Persimmon said it had sold 5,501 homes in the first half of the year, down 31%, while the average selling price was £181,500, compared with £189,225 a year ago.

Persimmon's chief executive, Mike Farley, said the company had mothballed many developments and was only proceeding with new projects cautiously. "There was a definite shift down in April when the mortgage market.....continued below

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got much tougher," he said. The speed of the deterioration had caught the industry by surprise. "The fundamental difference between this and previous housing slumps is that there has never before been a lack of mortgage money available; they have usually been more generally due to the wider economy, or because prices have become unaffordable. Twelve months ago, the banks and building societies were lending 100% of value, now you generally have to get together a 20% deposit and people haven't got that amount of savings," he said.

He predicted that prices would fall by another 5% in the second half of the year and that the market would be unlikely to improve for at least 12 to 18 months.

Despite efforts by the Bank of England to inject capital into the market, banks and building societies have continued to tighten lending criteria, increase the cost of borrowing and remove products.

According to figures published yesterday by the Council of Mortgage Lenders the number of new home loans in May fell by 44% to 52,700 against the same month a year ago, although that was a marginal increase on the figure for April. Remortgages fell steeply as borrowers were put off by high costs and arrangement fees.

The Bank of England is expected to leave interest rates at 5% when it concludes its monthly meeting tomorrow.

The downturn means the government target of 240,000 new homes a year is looking unlikely. Estimates range from 80,000 to 120,000 instead. Persimmon is expected to complete 11,000, down from 16,000 in 2007. Seema Shas, a property specialist at the consultancy Capital Economics, said the credit crunch showed no sign of easing. "The housing market correction is only in its early stages."