2008 housing losses cancel out boom gains

BDO Housing Tracker - According to data from accountant BDO Stoy Hayward, land writedowns and falling sale prices mean the sector has already made a combined loss of £3bn in 2008.

Richard Kelly, BDO’s construction partner, said the figure would rise once Taylor Wimpey and private companies reported their figures, eclipsing the £3.9bn operating profit made across the sector in 2006.

He said: “The fact that a significant amount of these losses relate to stock writedowns and goodwill impairment charges shows just how much the sector assumed the housing bubble would continue to inflate, overpaying for land and other business and ignoring the lessons of the early nineties.”

The BDO housing survey tracks the profitability of housebuilders (see graph). The latest figures show how margins plunged in the middle of last year.

The news comes as a straw poll of six analysts showed they all agreed that the relatively strong performance of the big seven listed housebuilders on the stock market in the first three months of 2009 would not last.

Housebuilders have outperformed the market by about 43% since the start of the year as hopes built that the market was set for recovery. But the six said the sector had risen too far and warned of negative news in the pipeline.

Analysts base their rating on whether they think a company’s stock will rise, which produces a “buy” rating, or a fall, when they tell investors to sell. Based on last Friday’s share prices, the number of “sell” or “reduce” ratings across the sample rose from 11 to 16 since the start of the year (see table).

The number of “buy” ratings fell from 16 to 11 over the same period.

Charlie Campbell at Liberum Capital said: “At the end of last year I thought share prices were cheap and I told people they were too gloomy. Now it’s gone too far the other way. The whole world expects the unemployment rate to jump from 6.5% to 10% and that doesn’t normally allow the housing market to keep rising.”

Kevin Cammack at Cenkos said the price surge had partly been driven by a hunger to invest in stocks such as housebuilders that recover early in the economic cycle, while John Messenger at RBS warned of getting carried away by seasonal trends. He said: “Housebuilders have outperformed the market in the first quarter for 23 of the last 25 years. Would I put my pension on this being sustained into Q2 or Q3? No.”