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'house Prices Poised For 5 Year Correction'

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Guest wrongmove

The Times (scroll down the page)

Sorry if this has already been posted:

"...Housebuilders were weak as Morgan Stanley -- a long-term bear on the UK sector -- cut recommendations on Persimmon and Redrow. It argued to clients that the builders have been distorted by consolidation hopes and no longer reflected a grim outlook for the housing market.

The US broker conceded that its negative call on house prices had been wrong up to now. However, it argued that affordability is looking more stretched than ever.

Assuming that mortgage rates can remain at current levels, which are 22 per cent below the average over the past 25 years, house prices would be sustainable at 4.8 times earnings versus the 25 year average of 3.9 times, Morgan Stanley said. But prices are currently 5.8 times earnings. A correction would require between four and five years of zero house price growth, it said.

For the house builders, Morgan Stanley noted that the sector is depending on volume growth to counter falling profit margins. But there are few economies of scale that would offset the rising costs of land, labour and materials.

With supply increasing, profit margins will deteriorate sharply as cost inflation outstrips house price inflation, said the broker.

"House builders are overvalued and at a premium to consolidation and even optimistic pricing forecasts," concluded Morgan Stanley, which moved Persimmon to "underweight" from "equal weight" and downgraded Redrow to "equal weight" from "overweight".

Persimmon slid 37p to £13.52 and Redrow retreated 15.5p to 559p. Barratt Developments softened 9.5p to £10.87...."

Maybe it really is time to short the builders!

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house prices would be sustainable at 4.8 times earnings versus the 25 year average of 3.9 times

Fore the market to be sustained new buyers have to come in. In the UK the average property is far beyond 4.8 times earnings. And IR are unlikely to remain at historic lows for much longer unless we go into recession and then HP will be driven down by unemployment and low confidence levels.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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