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The only way I would value housebuilders at present is book value. The CRST update yesterday just shows how lower profit forecasts can batter the SP, even though CRST was already the best value with the lowest PBV of the lot.

Am I missing something? Why is PSN trading a smidgen below PBV while all other HB’s are trading 30-50% below book value?

I thought about investing here, but a capital raise looks a real possibility. If the BOD does a CCL and confirms no capital raise required then I will invest.

Whether you see a house price crash or not, the rest of the market does so the SP will continue downwards.

Never buy a falling trend, especially one that’s been running 2 years with the macro only getting worse, you almost certainly end up with a haircut.

Thanks strictly, insightful as always. Having being burnt in the last crash, I’m intrigued to know, are you still invested in HB’s or sitting on the sidelines waiting to jump in at the bottom?

Lorenzo,

I’ve not researched those so much because they haven’t fallen enough to wet my appetite. I have shorted Bellway and BDEV, because I’m sure they’ll retest October 22 levels, and I’m surprised they haven’t already.

I understand other HB’s have a stronger balance sheet than PSN, priced at about 80% of book value which probably explains why they haven’t fallen as much, but I think we’ll see 50% of book value on all HB’s.

Just look at marstons, basically a freehold property company currently trading at about 30% of the book value. British land currently trading lower than 2009, and land securities almost at 2009 levels, both currently trading at about 50% of book value.

Nobody knows where the bottom will be but I’ll start buying any HB at 50% of nav for a long term hold.

Don’t underestimate the impact a relatively small house price fall will have on the HB share prices.

House prices only fell 15% in 2008 but the PSN share price fell 85%, BDEV fell 95%. Throw build cost inflation into the mix as well and we could be looking at even bigger falls this time round.

I reckon we’ll see the book value marked down to about £8.50 per share to account for falling house/land value, as well as the losses that will have to be swallowed this year and maybe next.

If we go 50% of nav as happened in 2008, probably be in the low 4 quids, back end of this year/beginning of next.

Other HB’s have seen major growth over the past 30 years but TW hasn’t. Anyone know why this is?

Oracle, the cost increases of resources you mention only squeeze the HB margin more.

The fact borrowers are being allowed to switch to interest only will only make them want to stay in their current house. Banks won’t offer interest only for home movers unless strict criteria is met, typically at least 300k equity, 50% LTV, £75k minimum income.

There’s not a shortage of housing, there’s a shortage of affordable housing. As prices are dictated by supply/demand and what the market is able/willing to pay, house prices have to come down, added with the increased price of materials and the HB margin is more than wiped out.

Beware of the false bottoms here. I made a rookie error buying here at £13.70 on a rumour that help to buy was coming back, nationwide reported house prices were flat and mortgage rates were coming down so I thought we were in recovery. How wrong was I? Until inflation drops below 5% the trend will be downwards and anything else just a dead cat bounce. Thankfully, I did cut my losses when I saw mortgage rates were going back up, but still an expensive lesson we’ll learnt!

I’ll only buy back here only when it’s official that inflation is sub 5%. Yes, the share price will have bounced a little on the news but I still think it will be a much lower entry point than todays price, and we should actually be in recovery.

In 2008 there were lots of rebounds, but the gains (and more) were lost almost immediately. The trend will be downwards until inflation is below 5% imo.

There’s 3 types of investor on here:

1. Those who are in denial, emotionally attached to their initial investment and refuse to cut their losses

2. Those who take a long term view, expecting it to dip short term, but a good long term hold so they buy anyway

3. Those just waiting for it to bottom out, and have their cash earning a return elsewhere in the meantime.

Personally, I can’t see how a divi can be paid for the foreseeable. If that gets announced in August, all those who were holding for the divi will sell up and it will lost the 30% premium it has over other HB’s in terms of price to nav.

As for other housebuilders, I’m astounded that they aren’t yet at October 2022 levels. What was perceived to be a short term problem then is now looking like the new norm.

Lorenzo, there’s ansolutely no chance of Sunak coming up with some scheme to help HB’s imo, or anyone buying a house. He’s just ruled out mortgage support, giving his usual spiel that his single focus is to half inflation. The way it’s going, he’s going to have egg on his face with that one.

Next year however will be a different ball game altogether as he tries to lure younger voters desperate to get on the housing ladder to vote Tory, who would ordinarily vote labour.

Hence why I’m watching it dwindle this year before buying any HB’s. The best returns come from buying at the lowest prices.

Well said Mark. For all the LTH concerned about the SP, I’m sure this will recover in a few years. Just be prepared to weather the storm over the next year or 2.

If we look at the history of crashes I’d say:

Summer 2022 equivalent of 2007 (very hot market)

2023 equivalent of 2008 (wheels starting to come off)

2024 equivalent of 2009 (will bottom out)

Return to growth in 2025

PSN reached about 45% of the NAV in 2009 so if it does the same this time we’d be looking at about £5 share price.

Anyone remember the term “credit crunch” in 2008? Well that’s exactly what we have again. The cheap credit has been pulled and it will inevitably cause prices to come down. It may take a couple of years to see the full effect though as people’s fixed rate deals come to an end. Will be a lot of rentals coming up for sale as landlords too can’t make the numbers add up.

David, nobody realised they were in “2008” until 2009. They probably saw buying opportunities all the way down too.

JC, relatively new yes. I thought my username made that obvious. I believe the 13 year lows you referred to are in the 300’s… SP is currently in the 1100’s so I’m not sure if your methodology there.

Yes, bit of an impulse buy. I think there’s a chance it could double from here within 3 years, however I think it will fall further short term.

It seems every time a HB says the same things, all HB’s get battered. Last week it was CRST, this week Bellway. Just wait until results start getting published. PSN will get hit the hardest when people realise the divi that they paid a premium for is gone.

Having done a bit more research in to the financials I came to the conclusion that PSN is overpriced compared to other HB’s.

PSN has always traded at a premium for its dividend, but let’s be honest the margin of all HB’s will be wiped out this year with rising costs and falling house prices, so I expect the dividend will be too.

Other HB’s are trading at approx 0.8x book value, having recently traded at 0.6x vs PSN currently at 1.08x.

Shares fell about 85% in the last crash, so I’ll jump back in should they do the same this time round.

Mike, thanks very helpful but I’m confused as to why we’ve taken a hit specifically today. PSN already fell about 6% when UK inflation data was released about 2 weeks ago, so I would’ve thought that priced it in. Why another 4% sting today?

Hi Mike, thanks for your response. BoE usually follows the fed re rate hikes and the market is pricing in an almost certain chance the fed won’t raise rates this month so we will see. You’d think high wage inflation would cancel out the effects of CPI inflation/interest rates anyway in terms of affordability. Tomorrow’s another day.