Housebuilders come crashing down

[Massimo A. Allamandola]

Housebuilders come crashing down
http://www.guardian.co.uk/business/2008/jun/11/housing.property.crash


The Financial Services Authority is closely monitoring the house 
building sector as the value of the big construction firms continued to 
shrink today.

Britain's bruised and battered housebuilders suffered another torrid day 
on the stock market after Merrill Lynch warned that the housing market 
could face a repeat of the 1990s crash. Some £5bn has been wiped off the 
value off the big builders, including Persimmon, Barratt Developments 
and Taylor Wimpey since the beginning of this year. Many analysts 
believe the firms, which have lost £15bn in value since last summer, are 
close to breaching their banking agreements.

A spokeswoman for the FSA told guardian.co.uk that "we are keeping the 
house building sector under close scrutiny".

Shares in Barratt Development plunged by as much as 40% this afternoon, 
forcing the firm to put out a statement in which it insisted that 
trading was still in line with expectations. This helped to partially 
reverse the fall by the market close.

In a research note published this morning, Merrill analysts said that 
the early 1990s housing market has "increasing relevance as a comparator".

"There is growing evidence of consumers now behaving in a manner similar 
to that seen in the early 1990s, in that concerns over job security and 
falling house prices are leading to a reluctance to make a house 
purchase," Merrill added.

It also downgraded six housebuilders – Persimmon, Barratt, Bellway, 
Berkeley, Galliford Try and Redrow.

In the statement issued this afternoon, Barratt said it remained 
confident of hitting current market expectations for profits this year, 
and said it only expected to make limited writedowns of the value of the 
land it owns. Its shares closed 21% lower, following yesterday's 24% 
tumble, valuing it at just £250m. A year ago its shares were worth £11.

Persimmon, which slipped by 3% today, is now worth just over £1bn, down 
from £3.9bn last summer. Britain's most valuable housebuilder, it is 
dropping out of the FTSE 100 in this week's quarterly review.

Shares in Taylor Wimpey plunged by 19% to 52.1p even though it was not 
downgraded by Merrill, meaning it is now worth around £550m. It was 
created last spring in the £5bn merger of Taylor Woodrow and George 
Wimpey, and has suffered from the slump in the US housing market.

Bellway's shares are down 66% this year. It is now worth £580m, down 
from £1.58bn a year ago. Berkeley Group is down 61%, now worth £882m 
from £1.9bn a year ago.

Bovis shares fell nearly 9% today. Its market value has shrunk from 
£1.24bn in June 2007 to £378m today. Shares in Redrow also fell 9% to 
151p, giving it a market capitalisation of £240m, down from £915m a year 
ago. And Galliford fell 4.6% today, taking its value to £117m – almost 
£540m less than last summer.

Barratt's share plunge yesterday was sparked by Dresdner, which said the 
collapse in house sales, married to the firm's mountain of debt, meant 
it was unable to put a reasonable value on the business.

Last month, Barratt said that it had refinanced some of its debt and was 
in talks about the remainder.

Since then, house prices have continued to fall and estate agents have 
warned that sales volumes have plummeted.