If you’re unlucky enough still to hold shares in a house builder then Cityblogger sends you his deepest sympathy. For if the past year’s shocking share price performances weren't punishment enough, during the last 24 hours the market has turned up the heat on the longsuffering sector.

House builders are on the back foot after a series of broker downgrades sent their shares nose diving. On Tuesday the shares experienced their single biggest drop since the credit crunch kicked in. The fall came after broker Dresdner Kleinwort withdrew its target price on Barratt Development’s shares, and in an unusually candid note to investors expressed concerns over its ability to manage its short-term debt and the likelihood of potential cashflow problems. Barratt’s shares shed 24 per cent of their value yesterday and are down another 25 per cent today – down 93 per cent over a year. Ouch! Peer company’s shares were also hit, with Persimmon shares down nearly 10 per cent on Tuesday.

And more pain is on the menu today, after analysts at Merrill Lynch got stuck in too, downgrading recommendations on individual stocks and comparing the current crisis to the housing market recession in the 1990s. Unsurprisingly Barratt’s shares are down another 25 per cent today, while Persimmon’s are off a further 7 per cent. Investors have been waiting for Barratt to follow RBS’ example and do a rights issue, but it could be difficult to achieve now. And talk is that a debt for equity swap could be the more likely option.

Attempting to call the bottom of the sector is like building one’s house on the sandy ground. “Like many of its sector peers, Persimmon’s share price has been in decline since early 2007, so has been something of a leading indicator for the weakness in UK property prices,” points out David Jones, chief market strategist at IG Index. “On this basis, many would assume that whenever these property stocks do bottom out, it will still be in the face of gloomy newsflow for the housing market.  But at the moment, with a slew of negative data coming out almost daily for UK property and the likes of Persimmon still in sharp decline, many investors seem to be resolutely avoiding trying to catch this particular falling knife.” 

Wise words! Cityblogger wouldn’t touch the sector with the proverbial pole right now.

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