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Ft Alphaville Commentry

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From the FT Alphaville duo today regarding Barratt Developments and Rightmove:

From FT alphaville today (in the end good comment on batti)


we are on to housebuilders


Ok - this is on the obviously nonsense Rightmove survey.


Up 3.1% in October




The average house price is now £236,849.


Though that's asking prices.


so Halifax says house prices down 3%


and rightmove up 3%


Well, Rightmove represents the "assumed 10-15% discount" sellers now expect to take.


So it is, quite simply, a bobbins survey.




total bobbins


Here's Howard Archer to say the same, albeit in rather more measured language.


Tongest - Goldman Sachs?)


Rightmove reported that asking prices for houses rose by an incredibly optimistic 3.1% in the month to mid-October. This followed declines in each of the previous three months, including a drop of 1.1% in September. Despite the sharp monthly rise in October, the year-on-year increase in asking prices only rose back up to 2.9% after dipping to 2.6% in September from 4.3% in August and 6.0% in April.


Greater London saw asking prices rise by an even more optimistic looking 5.0% month-on-month in October, although the year-on-year increase actually moderated to 0.6% from 2.1% in September. While London prices have often been supported by a lack of stock, Rightmove noted that this time around there is a 34% year-on-year increase to 4,624 in the number of properties coming on to the market.

On the face of it the 3.1% rise in asking prices for houses in October seems completely at odds with the plethora of data and survey evidence indicating that the housing market is on its knees. And, of course, it is. But two points must be made:

1) The data are not seasonally-adjusted and asking prices tend to rise markedly in October as the autumn is normally a buoyant time for the housing market

2) These are vendors' asking prices for house prices and not the price finally achieved.


Does this spike up in asking prices for houses in October reported by Rightmove fundamentally change our view that house prices will trend down over the final months of 2010 and during 2011 to lose around 10% of their value?


In a word - No. There can be little doubt that many sellers are "trying it on" and deliberately asking inflated prices, knowing that they will be knocked down by potential buyers who have the upper hand given the current weak state of the housing market. These sellers are likely hoping that they will get a price nearer to what they really want if they ask an inflated price to begin with. The danger with this, of course, is that they risk getting little, if any, interest from buyers in their houses.

Admittedly, some vendors (particularly those that are not under any form of pressure to sell) may hold out for some time in accepting a significantly lower price than they are asking for. And some vendors may not be prepared to accept the prices they are being offered and take their house back off the market.


In fact, other elements of the Rightmove survey reinforce our view that house prices are headed lower. In particular, Rightmove reported that the average unsold stock per surveyor was still up at 78 in September (which was only marginally below the record high of 79 seen in August and July). Furthermore, Rightmove revealed that many agents reported "buyer activity failing to pick up after the summer break". In addition, Rightmove highlighted "deteriorating mortgage availability".

We expect house prices to trend down relatively gradually over the final months of 2010 and in 2011 to lose around 10% in value. There is however likely to be significant volatility around this gradual overall downward trend. High (and likely to rise) unemployment, muted wage growth, an increasing fiscal squeeze, low consumer confidence, difficulties in getting a mortgage, a housing supply/demand balance currently firmly in favour of buyers and a house price/earnings ratio above long-term norms are a poor combination of factors for house prices. Low interest rates and the current stamp duty holiday for first-time buyers on all properties costing up to £250,000 only partially offset these adverse factors.


(Tongster - seriously I have heard rumours that HSBC would like to build out their corporate broking business in the UK. So I reckon it might be them)


(I've heard the same rumours, as it happens.)


thanks for that


and on Barratt


I am not sure it is up because of the world's most ludicrous house price survey

Barratt Developments PLC (BDEV:LSE): Last: 89.95, up 2.95 (+3.39%), High: 90.05, Low: 85.75, Volume: 4.34m


i reckon it has more to do with some director share buying on Friday


Panmure explains


Barratt announced that Finance Director David Thomas acquired 30,000

shares on Friday, taking advantage of the fact that the stock is trading on a

60% discount to tangible NAV. Despite the fact that market conditions

remain uncertain, we believe that investors willing to take a medium term

view should see good returns as the NAV discount narrows over time. We

reiterate our Buy recommendation and 153p target price


Rationale for discount has weakened. The rationale behind that huge discount has

weakened in our view;

Firstly, the group has significantly improved its balance sheet over the past 18 months.

Gearing at the year-end on a net tangible basis was 18%, down from 89% a year earlier

and we would expect it to be maintained around this level in 2011. There are therefore

no issues from a debt perspective.

Secondly, it is well known that Barratt took the lowest write-downs of all during the last

downturn, and so it is natural to read across that the business will be the first to see

write-downs should prices start to fall again. This is certainly true, but with net margins

at the group now running around 6%, the company could absorb at least that much

deflation before write-downs occur again.


Recommendation. On that basis, despite the fact that market conditions remain

uncertain, a 60% NAV discount looks overly cautious to us. For investors willing to take

a medium term, view there should be good returns to have as that discount narrows. We

therefore maintain our Buy recommendation and 153p target price.


A bit bullish for my tastes


but nicely argued

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