A year is a long time in housebuilding. After an optimistic start to the year, most housebuilders saw their valuations peak in the summer as investors, buoyed by government promises, bet on a swift market recovery. Then reality bit and the selling began.
With the exception of Vistry (VTY), which has issued two profit warnings in recent months, all of the major housebuilders are trading below their 10 and five-year average forward price/earnings (PE) ratios. From a price-to-book perspective, Vistry, Barratt Redrow (BTRW), Crest Nicholson (CRST) and Bellway (BWY) are all trading below book value. Taylor Wimpey (TW.), Persimmon (PSN) and Berkeley (BKG) are trading at a premium. Yet except Berkeley, all major builders are trading at a premium to their 12-month trailing earnings per share.
In short, the market is already pricing in some degree of recovery. The question is how realistic is this recovery?