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Citigroup has rushed to raise its price targets for most of the big builders despite the Ernst & Young ITEM Club warning that house prices could take a further five years before they return to their 2007 peak.
Goldman Sachs also warns that house prices could decline by a further 10% before bottoming out during the middle of next year. But that has not stopped the American broking house from raising its target price for most of the builders.
The ITEM club, which uses the same economic model as the Treasury for most of its forecasting, also warns that house prices will start to fall again during the first half of 2010. It is looking for an average drop of 1.6% during the first six months of the year. That compares with a rise of 2.8% during the second half of this year.
It says prices have been driven up by a shortage of homes for sale, but once the supply of buyers that can afford big deposits dries up, there will be nothing left to support growth. There have been a small number of cash-rich buyers who have supported prices but the supply of these funds will prove to be limited.
This does not appear to be deterring the City, which has chased up shares of the big housebuilders from record lows earlier this year and has been supporting the current spate of rights issues in anticipation of a recovery in the housing market.
Citigroup has jacked up its target for Redrow, down 2.6p at 219.4p, from 150p to 250p, while tweaking Persimmon, 6½p off at 508p, from 600p to 630p. It has also raised its sights on Bovis Homes, 2p lower at 496¾p, from 585p to 630p, Bellway, down 10½p at 878p, from 910p to 1060p, and debt-laden Taylor Wimpey, 1.4p off at 47.9p, from 37p to 51p. It has raised its rating on
Barratt Developments, 8p lighter at 274p, from sell to hold and its target from 1200p to 1225p.
Goldman has moved Berkeley, 2½p stronger at 920½p, from neutral to buy and lifted its target from 798p to 913p. But it has added Redrow to its Conviction Sell list, despite tweaking the shares 4p higher to 178p. Bellway's target moves from 798p to 913p while Bovis goes up from 522p to 549p, Persimmon moves from 447p to 513p, and Taylor Wimpey from 39p to 51p.
Shares generally made a disappointing start to the week. A sell-off in Asia was the signal for City investors to start taking some of last week's profits. The FTSE 100 index, which last week topped 5000 for the first time in a year, fell 9.33 to 5002.14. In New York, the Dow opened 28.41 lower at 9577.
Miners helped drag leading shares lower following a softening of raw-material prices lower overnight in Asia. Kazakhmys fell 11p to 1085p, Vedanta Resources 38p to 1894p, and Eurasian Natural Resources 26½p to 844½p.
Oil shares were also down, reflecting the lower crude price which is now hovering around $68 a barrel. Dealers attributed the fall to the value of the dollar, which climbed off a year's low last week, and a move by the Chicago Mercantile Exchange to enforce positions on large existing limits. Losses were seen in Tullow Oil, down 29p at 1068, BG Group, 24p at 1111p, and Cairn Energy, 73p at 2698½p.
HSBC has begun coverage of Scottish and Southern Energy, up 6p at 1159p, with an overweight rating and 1350p target price.
UBS has raised the target on Footsie 100 newcomer Rentokil Initial, 0.5p firmer at 114p, from 90p to 121p.
Marks & Spencer firmed 1p to 373.4p. Morgan Stanley has an equalweight rating on the shares but has had to adjust its target price from 280p to 380p following their recent strong run which has carried them up from 326p since last month.
Gulfsands Petroleum accelerated 4¼p to 253p, with speculators talking of a bid for the oil explorer. But directors David DeCourt and John Dorrier have been selling part of their holdings. DeCourt has cut his stake to 4.3 million shares, or 3.58% of the company, while Dorrier has reduced his to 7.9 million, or 6.5%.
Intermediate Capital fell 8.7p to 292.9p after 1.25 million shares went through at 290p.
Credit Suisse has upgraded hotels chain Millennium & Copthorne, down 15p at 384p, from neutral to outperform with a 500p target.
