HEARD ON THE STREET: U.K. House-Builders Still On The Floor

By Hester Plumridge A DOW JONES COLUMN The average U.K. house may be worth almost GBP15,000 more than this time last year, with prices now just 10% below their pre-crisis 2007 peak, but not everyone is convinced by the recovery. Shares of U.K. house-builders are still hovering at mid-2008 lows. Taylor Wimpey PLC (TW.LN), one of the sector's largest players, now trades at a discount of 35% to its net asset value after reporting Monday disappointing first half sales figures. Investors are right to worry about a second house price dip, but the sector sell-off has gone too far. The bounce in U.K. house prices has been supported by ultra-low interest rates and a tentative economic recovery, as well as a structural supply shortage of some 130,000 new homes a year. House-builders say the transfer of planning policy responsibility from regional to local authorities could cause bottlenecks that restrict new investment this year, tightening the housing supply further. But risks to the house price recovery are high. Mortgage availability remains restricted. April's mortgage approvals were the lowest on record for that month, according to the Royal Institution of Chartered Surveyors. Affordability is out of step with average incomes on a historical basis, and the bulk of U.K. mortgages track the base rate, which could make future rate rises painful. Meanwhile government austerity measures threaten higher unemployment, while October's public spending review may see social housing grants cut. Affordable housing made up 17% of Taylor Wimpey's 2009 sales. Still, Taylor Wimpey shares are pricing in roughly a 30% write-down in land values. That would require average house prices to fall around 6%-8%, taking valuations back to last July's levels, according to Morgan Stanley. That's not implausible, given the likely spike in unemployment as public spending cuts bite. But it is not what Taylor Wimpey itself or any major house price forecaster expects. So long as the U.K. avoids a double-dip recession and interest rates remain low, as the Bank of England has signaled it believes is possible, then such a sharp fall seems unlikely. (Hester Plumridge is a writer for Heard on the Street. She can be reached on +44 20 7842 9267 or hester.plumridge@dowjones.com) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) (END) Dow Jones Newswires June 28, 2010 12:10 ET (16:10 GMT)