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House builder shares take hammering

Fresh warnings of a stalling housing market and analyst fears over future prospects combined to hammer shares in major housebuilders today.

Charles Church builder Persimmon - the FTSE 100 Index's last remaining housebuilder - fell more than 8 per cent, while Barratt Developments and Taylor Wimpey tumbled 26 per cent and 20 per cent in the FTSE 250 Index as concerns the pair will have to turn to shareholders with rights issues grew.

The misery came after the Royal Institution of Chartered Surveyors said the number of homes changing hands had fallen to a record low, while investment bank Goldman Sachs hit firms with a raft of downgrades.

The struggles of the sector mean that housebuilders are among the most "shorted" shares in the market. This is where investors borrow shares in a company to sell in the hope of buying them back at a lower price to return to the original owner - pocketing the difference as profit.

According to Data Explorers, a research firm which tracks short positions, 19 per cent of Persimmon's shares are currently on loan. Goldman added to the York firm's woes by saying it was exposed to land writedowns and an accelerating downturn, advising investors to sell.

Goldman also slapped a sell rating on Flintshire-based FTSE 250 stock Redrow - down 10 per cent - amid worries over the high level of the company's debts in a cooling property market.

Barratt Developments - recently relegated from the Footsie - has seen its value slump to £310 million, less than a 10th of its worth in February last year.

But it is carrying debts of around £1.7 billion after its acquisition of rival Wilson Bowden, prompting concerns that Barratt will need to tap shareholders to strengthen its finances.

According to Data Explorers, 12 per cent of Barratt's stock is now on loan with short-sellers compared with 4 per cent in January.

This figure stands at 17 per cent for Redrow's shares and 11 per cent for Taylor Wimpey, although the most "shorted" housebuilder, Bovis Homes - at 23 per cent - saw shares fall just 6 per cent today.

Housebuilders are cutting back on projects as banks hit by the credit crunch tighten up on mortgage lending, putting further pressure on the market.

RICS said agents sold an average of just 17.4 properties each during the three months to the end of May, the lowest figure since it began collecting data in 1978.

Recent data from the Halifax and Nationwide for May also showed the steepest fall in house prices since the recession of the early 1990s.

Despite the tough economic conditions, inflation concerns triggered by soaring oil and food prices mean Bank of England policymakers are unlikely to come to the rescue with interest rate cuts.

Related links: House sales fall to record low