Builders feel pain as house prices fall

By Sumeet Desai

LONDON (Reuters) - House prices are sinking and housebuilders are first in the firing line for a property market downturn that is threatening to plunge the whole economy into recession.

The cost of an average home fell by 2 percent in June, data from HBOS, the country's largest mortgage lender, showed on Thursday. Prices were 8.7 percent lower on the year, a bigger fall than at any time during the 1990s crash.

"It is fair to say we are now in the worst housing slide for over 50 years," said Michael Saunders, economist at Citigroup.

Barratt Developments (BDEV.L), one of the country's best-known homebuilders, said it was going to lay off 1,200 people -- a fifth of its workforce -- because of the housing downturn. Nor would it pay a final dividend for 2007-08.

That took the total number of job cuts announced by homebuilders in the last week to around 4,000 as Persimmon (PSN.L), Taylor Wimpey (TW.L), Bovis Homes (BVS.L) and Redrow (RDW.L) have all been warning of a sharp turnaround in business.

Austria's Wienerberger (WBSV.VI), the largest brickmaker in the world, reported on Thursday a 10 percent drop in its core earnings for the first six months of the year, because of a collapse in homebuilding.

"The spread of the financial crisis to Great Britain triggered a slump in new residential construction beginning in April," said Wienerberger.

SLUMP COULD GET WORSE