Housebuilders have come under pressure following new mortgage lending figures showing the weakest total for at least 16 years, as well as a negative broker note on the sector.
In a hefty 130 page research note, KBC Peel Hunt Robin Hardy issued sell recommendations on all the major housing companies with one exception, Galliford Try. He said:
"The housing market still faces an uphill struggle, with recovery hampered by a lack of mortgage finance and severely constrained lenders. With too few mortgages available, we envisage a prolonged buyer's market. Personal finances are also under pressure, with flat to negative wage growth plus a rising tax burden. Taken together with rising mortgage funding costs, we see further material falls in house prices. This bears heavily on both the recovery and current asset underpinning for the quoted housebuilders. Sector valuations appear stretched on both a discount to net asset value and ultimate earnings recovery basis. In addition, we question the viability of the established development model for new housing in a stubbornly high cost and low inflation environment."
So Barratt Developments is down 2.5p at 145p, Persimmon 4.5p lower at 342.5p and Berkeley off 17p at 799.5p. Galliford Try, which mixes construction and housebuilding, added 1.75p to 48.5p. Hardy said:
"While Galliford is not a pure housebuilder and this makes evaluation on the models in this note more difficult, this business cannot be ignored. It is larger than both Redrow and Bovis Homes, and its strategic execution throughout the downturn has been impressive. In our view, buying Galliford is essentially getting a housebuilder for free, as the construction businesses alone more than support the current share price."
