UK Housebuilders - a serious case of undervaluation?

Although prospects seem rather gloomy for UK housebuilders, with house prices already having suffered 2/3 months of falls, and recently rising costs of mortgages, including steep rises for those whose fixed-rate mortgages are terminating, the fall in share prices of UK housebuilders appeared to me way too steep. For example, Barratt Developments (BDEV) had fallen from a 2007 peak of 1174p to 320p. This lead me around 10 January to examine the latest data on assets, liabilities, and current market capitalisations, but using the tough criteria suggested by Benjamin Graham of comparing only gross current assets (ie ignoring non-current assets) with gross total liabilities. This gave a net current asset value (NCAV) of £1.88bn. The market capitalisation of BDEV at 320p = £1.11bn. That was good enough for me. I bought some BDEV at 325p on 10 Jan. Other housebuilders also had NCAV > market capitalisation - although not as dramatic - and I bought some Taylor Wimpey (TW) at 160p on Jan 15. Tonight BDEV closed at 477p and TW at 204.75p. Not surprising that directors in all the UK housebuilders have been actively buying shares in recent months.

2007: a difficult year

My first year of relative underperformance since 1998, down 8.7% compared to the FTSEAllShare's positive 5.5%. Partly explained by the bad time smaller companies have had on the UK market - the FTSESmallCos being down 9.9% - but much due to a too early rush into financials, including the doomed Northern Rock .... presumably their ex-directors who made heavy mid-summer purchases of shares in the summer must look upon 2007 as a year to forget.

I was also too optimistic about the direction of the market which not only ended the year rather flat, but promptly began to plunge steeply in the first weeks of 2008.