Housing Stocks Under The Hammer
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What on earth is happening to house builders right now?
Even for those like me who have been in bearish mode since mid 2007, the severe subsidence in the shares of UK home construction companies is a bit of a seismic shock.
Over the whole of 2007, leading house builders Persimmon
(LSE: PSN)
plunged 48%, Taylor Wimpey
(LSE: TLW)
tumbled 52% and Barratt Developments
(LSE: BDEV)
was blitzed 63%.
Smaller players Bovis
(LSE: BVS)
, Bellway
(LSE: BWY)
and Redrow
(LSE: RDW)
were also savaged, suffering slides of 43%, 46% and 54% respectively.
Though what really has caught the eye has been the sector's share price shenanigans over the early days of 2008. Persimmon has plummeted an extra 17%, Taylor Wimpey has been trashed 21% more and Barratt has been bashed a further 28%.
Bellway has been belted another 16% while Bovis and Redrow have both been slashed an additional 18%.
Very nasty!
I generally tend not to set too much store by one-week price moves. But when a whole sector gets put to the sword, having already endured serious grief, warning lights start flashing. The average house-building stock has now collapsed 60% from the peak, and the decline is accelerating.
Yet while there have been some quite cautious comments from the companies themselves, including Persimmon's yesterday, nothing has been said to justify this level of near panic.
So what's going on?
We know that British house prices, with the possible (temporary?) exception of top-end central London properties, appear to have peaked. In many areas values are declining and the buy-to-let sector is under the cosh.
The simple message from the stock market is that the near-term house price and sale outlook is worsening much faster than the property professionals are telling us.
But is there more to fear?
The American domestic property scene has been in decline for over two years now. And Stateside, as I have previously described, the pain is palpable.
A scary report on Bloomberg this morning detailed a home sale auction in November by mainstream builder Lennar Corp. 11,000 properties in eight US states have apparently been sold off for just 40% of their price two months ago.
While there are clear differences between the US housing market and our own, there are also similarities.
House builders' share prices could also be warning us that the British property market will be down in the doldrums for much longer than the 'experts' would have us believe. Which could alter our entire national perspective on housing.
Instead of being a nation of aspirant home owners at any price, we could again start to see a house as simply somewhere to live. We would judge buying against renting purely on relative-cost criteria, rather than viewing domestic property as a guaranteed, sure-fire, always appreciating investment.
Or maybe I'm extrapolating this too far, just hoping for a return to economic reality, as house prices and mortgages revert to sensible income multiples again.
But, whatever the longer-term outlook, the stock market is talking. Loudly. And as a former boss of mine used to say whenever stocks fell very sharply for no plainly obvious reason: "If forced to choose between the story and the share price...always believe the share price!"
