RBC Capital Markets has upgraded Barratt Redrow PLC (LSE:BTRW) to 'outperform' and Berkeley Group Holdings PLC (LSE:BKG) to 'sector perform', while slashing price targets across the sector by an average of 25%.
Barratt, upgraded from 'sector perform' with a revised 350p target, is seen as oversold following a difficult period of post-merger integration with Redrow.
Berkeley, upgraded from 'underperform' with its target held at 3,900p, is viewed as the most resilient operator in the sector given its robust orderbook and increasing exposure to build-to-rent.
The upgrades come against a backdrop of sweeping estimate reductions, with RBC cutting its sector-wide volume forecasts by 2.5%, 6% and 10% for 2026, 2027 and 2028 respectively.
Average selling prices have been trimmed by 2% to 3% across each of those years, with operating margins cut by around 100 basis points in FY2026, widening to 200 basis points by FY2028.
Rising mortgage rates and the cost-of-living effects of the conflict in Iran are identified as the primary demand-side pressures, with build cost inflation adding further pressure on margins from the supply side.
RBC analysts Anthony Codling and Oliver Dyson note that sector valuations have returned to levels last seen during the global financial crisis, trading at around a 40% discount to historical book value.
The broker argues that without a meaningful demand catalyst, most likely a government-backed Help to Buy scheme, the sector lacks the trigger needed to re-rate.
Vistry Group PLC (LSE:VTY) faces the starkest assessment in the note, with its price target cut 53% to 180p from 385p, the only stock in the coverage universe for which RBC implies significant downside at current prices.
RBC flags that Vistry's liabilities stand out against peers, its payment record to suppliers is the weakest in the sector, and its customer satisfaction scores across its Bovis, Countryside and Linden brands are the lowest of any housebuilder covered.
Unconfirmed press reports suggesting Vistry has halted payments to some suppliers add a further layer of concern, with RBC warning that poor payment performance could leave the company short of contractors willing to work with it.
The broker also notes that the going concern disclosure in Vistry's latest accounts has tripled in size, and that the CEO's directive to cut prices as much as required to double sales rates is putting additional pressure on already-compressed margins.
Persimmon and Taylor Wimpey retain outperform ratings, while Crest Nicholson and Gleeson remain outperform and underperform respectively.