Analysts at Credit Suisse suggest the housebuilding sector valuations have not been this depressed since 2013 even though prices continue to bound ahead.
“The sector is already discounting at least around a 7% house price decline and 20% decline in volumes," said the broker.
“In our view, this looks extreme, particularly given that house prices have only fallen by more than this twice in the last 50 years.”
Credit Suisse is nonetheless concerned about the drying up even more of first time buying and the problems that poses for all the builders bar London specialist Berkeley Group, which has a substantial foreign customer base,
The broker sees the household income squeeze making buying a house increasingly difficult, especially at the bottom/first-time buyer (FTB) end though the relative lack of supply will continue to underpin prices.
“While FTB direct exposure varies, builders selling to second-time buyers are still dependent on FTBs at the bottom of the transaction chain.
“We continue to view Barratt Developments as particularly undervalued,” said the note though it add that the sector overall has sold by 33% since last year’s peak.