In the first of a series of articles examining the short-term prospects of the construction industry, we look at how changes in the housing market will affect listed housebuilders over the next six months
Results season has been kind to housebuilders. Most of the majors have unveiled encouraging figures, with Barratt and Wilson Bowden among those setting record results.

The next six months, however, may not be so easy. Much of the sector's zip was provided by house price inflation of up to 30%, and that is falling fast. Property website Rightmove estimates that the growth of prices has dropped to 9.1%.

Listed housebuilders know that the City is watching the sector closely. It's barely a decade since housebuilders were squashed flat by the great 1980s housing crash, leading to losses and a write-downs galore.

On the plus side, the leading housebuilders believe that inflation is adjusting relatively slowly – the bubble will deflate, rather than burst. Paul Pedley, chief executive of Redrow, estimates that inflation could slow to between 3% and 5% over the next three years.

I think the City was concerned about a sharp slowdown

Paul Pedley, Redrow

He says this could drag the company's profit margin down from 19% to 17%.

Pedley believes that the slowdown may provide evidence that housebuilding has become a well-run, sustainable industry: "In broad terms we're at the top of our operating margin cycle. I think the City was concerned that there would be a sharp slowdown. But the adjustment that will happen will be a gradual change, showing that our profit is sustainable [in a less buoyant market]."

But Chris Millington, a housebuilding analyst with investment bank Bridgewell, points out that the sector's performance in the City is driven largely by the number of completed sales it announces, rather than by margins. Millington forecast earlier this year that the number of completions this year would rise 5%, but has recently revised this downwards to 3.2%.

He also fears that despite claims of record forward sales from almost all the leading housebuilders in recent months – which helped raise the sector's average share price 0.5% between mid-August to mid-September – many of those potential sales may not complete: "Some housebuilders take a £500 deposit on a £200,000 house. People could easily drop out of the deal. If the market gets worse that forward order book may not prove to be so strong."

Berkeley is one housebuilder that does demand a high deposit – around 10%. That means that people have to put down an average of £28,000 to secure their Berkeley home.