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UK housing market has stabilised at low levels
• The UK housing market appears to have stabilised,
albeit at depressed levels. There is evidence that prices
have bottomed out, with several builders reporting
sales prices running in-line with expectations.
• Economic data still indicate a tough time ahead for the
UK economy. Housing will be affected by rising
unemployment and the continued lack of availability
of mortgage finance.
• However, we believe the housing market in the UK is
supported by fundamental under-build as well as by
the absence of excess inventory in the system.
Builders' focus turning towards increasing production and
buying land
• Several builders have now outlined their intentions to
increase production and purchase land where
expectations have adjusted significantly.
• Reactivating the land market will take time, but
transactions are starting to occur.
Maintain sector 'outperform' rating; Bovis Homes and
Barratt Developments are our top picks
• We maintain our 'outperform' rating on the sector.
Our top picks are Bovis Homes and Barratt
Developments.
• Bovis Homes stands out given the strength of its
balance sheet, its low valuation and its geographic and
product profile.
• In terms of pure valuation, Barratt Developments
stands out. Even assuming further write-downs and a
dilutive equity issue, the stock trades at a significant
discount to the sector.
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