Shares in housing-related stocks had already been weak this year in anticipation of a property market slowdown, but new data showing an actual decline in UK house prices and a warning from housebuilder Persimmon (PSN) about a rise in cancellations and a reset of its dividend policy have caused more unease among investors.

According to Halifax average UK house prices fell by 0.4% between September and October, the third decline in four months and the biggest drop since February 2021.

It’s worth noting the average October house price in the survey at £292,598 is still higher than it was six months ago and more than 8% above where it was a year ago.

It is a similar story with the Nationwide house price index, where October prices were 7% above their year-ago average.

However, the recent jump in mortgage rates means housing transactions are now expected to soften as affordability becomes a problem for many prospective buyers.

For the time being, a lack of supply of modern, fit-for-purpose housing, together with record high employment, are likely to keep demand for houses ticking over, albeit not at the same breakneck speed as during the pandemic.

The lettings market appears buoyant with London-based estate agent Foxtons (FOXT) reporting higher rents due to strong tenant demand and a dearth of rental stock while Belvoir (BLV:AIM) said the shortage of available property both to buy and to rent has continued to put upward pressure on house prices and rental costs.

Analysts at Liberum believe house prices are likely to fall by 5% next year while sales volumes could shrink as much as 20%, but they point out that at current prices shares in the housebuilders themselves are already discounting a double-digit fall in prices and a 30% drop in volumes.

With valuations back to 2008/09 levels and housebuilders in a net cash position rather than heavily geared as they were previously, ‘the risk/reward ratio is now in buyers’ favour’ says Liberum about their shares.

The key issue to consider is whether Persimmon’s decision to reset its dividend policy next March will prompt others to do the same. Investors have typically bought housebuilders’ shares for their generous income and any cuts to dividends will not go down well.

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