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How To Be A Winner From Falling House Prices

The recent panic about rising property prices in London seems to be abating a little, with a Royal Institution of Chartered Surveyors survey finding that a majority of surveyors expect prices in the capital to fall over the next three years. Recently introduced stricter rules for borrowing have apparently dampened bullishness, and reduced inquiries are said to be showing an “increased air of caution“.

Best for six years

housebuildingBut as a reminder that there really is more to the country than London, the latest report from Barratt Developments (LSE: BDEV), ahead of full-year results due on 10 September, told us that completions for the year to 30 June were at their highest level for six years.

Barratt completed 14,838 homes over the year, up 8.6% from 2013, and figures across the board were up too. The firm’s average selling price gained 13% to around £220,000, total forward sales are up 45%, and weekly net private reservations per site were up 19%.

From that, full-year pre-tax profit is now expected to come in around £390m, which is at the top end of analyst expectations.

With rises slowing, Barratt shares have gained only around 6% over the past 12 months to 359p, and are on a P/E of only around 12.5 for the year just ended.

A great first half

The news comes just a week after Persimmon (LSE: PSN) brought us an update ahead of its first-half results, and again things were upbeat. Persimmon saw an even bigger rise in completions, up 28% to 6,048 new homes in the first six months, with site visitor levels up 5%.

We heard of another nice rise in average selling prices, too, up 4% to approximately £186,000 — in this case, Persimmon saw a higher proportion of larger family houses in its sales mix. Results for the half are due on 19 August.

Persimmon shares have actually dropped by 2% over the year, to 1,234p, and are changing hands on a lowly forward P/E valuation of just 11.

Another record

But the biggest percentage increase in completions came from Bovis Homes (LSE: BVS), which gave us a first-half trading update on 8 July ahead of results expected on 18 August. Bovis reported a 54% rise in completions for the six months, to 1,487. Bovis also enjoyed a higher average selling price, telling us that its 11% increase to £210,000 came from a combination of a changing sales mix and “modest improvements in house prices“.

That completions figure set a new record, too, with chief executive David Ritchie telling us that “Bovis Homes has delivered its highest ever number of first half year legal completions“.

And the Bovis price has slipped by 10% to 760p, giving us a forward P/E of only 10. They’re still looking cheap.

How you can gain from falling house prices

Despite these great-sounding results, and after a strong three-year run, share prices for these companies are still not looking overstretched. Forecast yields of 2.5%, 6% and 2.8%, respectively, comfortably outstrip the average variable rate of 1.21% from a cash ISA, too…

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Alan Oscroft has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.