Back in late 2011 some of Britain’s biggest housebuilders were displaying signs of being bargain bucket shares with only the glimmer of potential to turnaround their fortunes in the near term. Since then, many of those value plays have seen their prices soar, justifying the bargain hunting credentials behind screening tools such as Benjamin Graham’s NCAV strategy. Eighteen months ago, this strategy was flagging the likes of Barratt Developments (LON:BDEV), Bovis Homes (LON:BVS) and Bellway (LON:BWY) as potentially attractive. But while systematic bargain investors have could have cashed in on their surging price momentum, it’s fair to wonder if these stocks could be at risk once again or whether there is more value to come.
Housebuilders were at the sharp end of the country’s credit fuelled economic collapse when it hit equity markets in 2008. Shares in Persimmon (LON:PSN), for example, the largest of them by market cap, collapsed from £15 to £2.20 during 2007 and 2008. Despite a widely-acknowledged need for new housing, the subsequent collapse of the mortgage market meant many of these companies simply had to down bricks and cut costs where they could.
While shares in Persimmon have since recovered to around £12, many industry-watchers think that the real road to recovery for Britain’s house building sector relies on how and when house prices correct themselves. Some believe that prices remain too high and that the comparatively rapid rebound in prices from the likes of Barratt, Taylor Wimpey (LON:TW.), Bellway and Bovis lack adequate foundations.
Added to the mix is Chancellor George Osborne’s desperation to breathe life into mortgage lending (and house buying), which resulted in a new scheme in his March Budget called ‘Help to Buy’. According to the Home Builders Federation, some 4,000 people have reserved a new home using this Government-backed equity loan in just two months. That all sounds rather promising but detractors fear the move is blocking a correction in house prices and encouraging buyers to take on excessive debt. Albert Edwards at Societe Generale recently described the policy as “an unusually misguided piece of government interference in the housing market”. He stressed that UK house prices, and London most especially, had never…
