UK housing shares surge on Goldman's conviction
Goldman Sachs caused a rally in U.K. homebuilders on Wednesday with an ultra-bullish analysis of the country's resurgent housing market.
The investment bank said it saw significant value in the sector as the housing recovery begins to take shape in the U.K. Shares of homebuilder Taylor Wimpey rose by 3.9 percent with an upgrade to a "conviction buy". Bovis Homes and Barratt also rose more than 3 percent after an upgrade to a "buy". Persimmon shares also rose 6 percent, Crest Nicholson by 1.9 percent, Bellway by 2.9 percent, Redrow by 2.6 percent, and Berkeley Group by 2.2 percent.
And there was also buying of U.K. real estate agents, with Countrywide rising 2.4 percent in morning trade on Wednesday.
Helped along by government initiatives like "Funding for Lending" and the "Help to Buy" home-buyers' program, of which an updated version was launched on Tuesday, leading indicators have pointed to a strong rise in house prices in the U.K.
(Read More: UK acts to reduce housing bubble fears)
British house prices rose at their fastest rate in 11 years in September and sales hit a four-year high, a survey by the Royal Institution of Chartered Surveyors showed on Tuesday, suggesting a sustained recovery in the property market. Meanwhile, property website Rightmove has predicted that prices will increase by 6 percent this year, from an initial estimate of 2 percent at the start of the year.
Forward sales for these housebuilders are currently tracking higher by around 50 percent, Goldman Sachs said in a research note on Wednesday, partially helped by the government stimulus. It now expects housing transactions to reach pre-crisis levels by 2016, instead of a previous estimate of 2020. It now sees an average of 49 percent price target upside on these U.K. housing exposed stocks in the next five years.
With housing indicators turning increasingly positive, concerns have also been raised. Critics of the "Help to Buy" measure have included both The International Monetary Fund and former Bank of England Governor Mervyn King who called it "too close for comfort" to the U.S. mortgage guarantee schemes that some blame for triggering the financial crisis.
But Goldman Sachs said that it does not see overheating at present, despite the Bank of England moving to increase its oversight of the U.K. housing market.
"While house price inflation has started to move up, this has been mainly confined to London," analysts Eshan Toorabally and Raghav Bardalai said in the note.
"With the rest of the U.K. yet to see strong growth; and with transactions/mortgage approvals still 50 percent below previous peak levels, we would argue that the U.K. housing market is some way off being stretched."
—By CNBC.com's Matt Clinch; Follow him on Twitter @mattclinch81