Friday, June 13, 2008

A good summary of housebuilders’ woes

Tough times for housebuilders but they won't last forever

"Merrill Lynch analysts' list of the top 10 housebuilders by market share from 20 years ago shows only three survivors." If it is "different this time" maybe none will survive!

Posted by wdbeast @ 11:57 AM (921 views)
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12 thoughts on “A good summary of housebuilders’ woes

  • “Merrill Lynch analysts’ list of the top 10 housebuilders by market share from 20 years ago”

    Would love to see this list – it’s worth noting there have been some key acquisitions over the past few years in the building sectors, so the “three survivors” is likely a collection of quite a few more.

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  • Shabba Ranks says:

    Two things I nioted about this article:

    1. They claimed a slowing economy led to falling priced in the 990’s crash, which just isn’t true. Falling housprices contributed to a slowing economy.

    2. Looking back at the ‘What happened last time’ secontion of HPC, I found this artcile, in The Times, approx 7 months into the 90’s crash (assujming we’re about the same place now):

    http://www.housepricecrash.co.uk/wiki/1990_Newspaper_Headlines#Saturday_06_JAN_1990_-_The_Times_-_Recovery_forecast_for_house_prices_in_market_awash_with_loan_funds

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  • There’s that term again “underlying demand” because of “demographics”, which is supposed to underpin the housing market in the long run. It’s not down to demograhics – otherwise there wouldn’t be homelessness and empty dwellings – it’s down to affordability. People who can’t afford what they want just cope – by homelessness, squatting, living in smaller places than they’d prefer, living with parents, going back home to eastern Europe etc. Anyway, is the ratio of bodies to dwellings so different here from the US?

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  • The founder of Persimmon famously started with just a wheelbarrow and became the top UK housebuilder.
    What the lord giveth the lord sometimes taketh away.

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  • montesquieu says:

    Land has an underlying value, and the land bank holdings consequently put some kind of floor on just how far share prices can fall before someone sees a buying opportunity. The difficulty is the builders fixed costs/overheads …. with minimal receipts coming in, a cashflow crisis is already in full flow.

    There is likely to be a lengthy period where banks’ unwillingness to lend collides with sellers expecations of continuous price falls – when it’s over what’s left of the building industry will be well-placed but in the interim they are bleeding cash like stuck pigs.

    Can’t say I’m sorry for them, having led the way in HPI for so long they are only getting their come-uppance. How many will survive? Possibly none. And who would be sorry? In three years time the land will still be there, only cheaper, for new companies to come in and develop.

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  • m – The land bank holdings only put a floor on value IF the companies have no significant debt.

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  • Distant_adz says:

    ‘…..It usually takes builders a couple of years to restock their land banks. That lack of supply could then squeeze prices up, just as buyers are returning….’

    Does the author expect a sudden increase in population size in the next 2 years or something? Rolling out the ‘pent up demand’ argument again…..buyers simply won’t be returning if the market does not represent value for money – that time is a long way off….

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  • m – Barratt Developments has a land bank of 113,500 plots but it’s current market cap is only about £250m.

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  • last_days_of_disco says:

    250 000k / 113500 = 2.2k

    That can’t be right. You are telling me all their plots are worth 2k each. With or without planning permission. How many have? Where are they, etc, etc.

    hmmm

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  • last-days. It doesn’t quite work like that, but look at their accounts. There was a thread about this on this site yesterday, posted at 9.48. In order to get your hands on the plots you’d pay (roughly) market cap + liabilities – disposable assets. Mark Wadsworth reckoned it worked out at a little more than £17k per plot.

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  • last_days_of_disco says:

    @icarus

    This is why we love HPC. That is quite useful rule of thumb when looking at distressed builders’ land.

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  • last_days – are you tempted to buy?

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