Broker tips: Bellway, MJ Gleeson, Persimmon, Bovis, Crest Nicholson, Telford Homes, McCarthy and Stone
In broker action, analysts at Canaccord Genuity said there was some "extremely attractive" valuations among housebuilders but this is balanced by macroeconomic risks that are "exceptionally high".
Canaccord's top picks for the sector were Bellway, MJ Gleeson and Persimmon, all with 'buy' recommendations, while Bovis was upgraded to 'buy' from 'hold' as "less recovery is now priced into the shares and the dividend yield is attractive".
There was more caution around Crest Nicholson and Telford Homes, which were both downgraded to 'hold' from 'buy'.
Shrugging off pressure on margins and the slowing of the higher-end of the market in London and the South-East over the last few years, the sector has generally continued to deliver strong profits, attractive dividends and net asset growth.
With the sector's shares down 26% this year due to Brexit fears, Canaccord's view is that shares are at levels where significant risk is being priced in, "presenting a very attractive potential value opportunity" if a painful housing recession is avoided next year.
A "crude sensitivity analysis" of the sector indicates that there is a 5% fall in house prices and a 10% fall in volumes currently priced into share valuations.
If the Brexit hurdle can be overcome and the 2019 macro backdrop does not crumble too badly the analysts expect a "sharp value rally".
On the construction side of things, analysts at Berenberg believe retirement home construction outfit McCarthy & Stone's trading will remain challenged, despite a "solid start" to its transformation plan.
Berenberg noted that a slower second-hand homes market, particularly in the southeast of the UK, continued to present "significant headwinds" for McCarthy, dampening demand for what remains "a high-quality product".
The German bank said McCarthy's turnaround plan, announced in September, was being hindered by a weaker second-hand market which had negatively affected demand for retirement properties, making its previous volume target "unachievable without significant price cuts."
"Having initially assumed that these savings would be achieved on a somewhat straight-line basis, we have adjusted our phasing to reflect the likelihood of more back-end-loaded delivery," said Berenberg.
As a result, the broker cut its full-year 2019 EBIT estimates for McCarthy by 11%, but made only "marginal changes" to its 2021 estimates as margin guidance had been maintained at roughly 15%.
"Although the transformation plan continues to make strategic sense, the dual uncertainties relating to the speed of delivery of the turnaround and the ongoing issues around the sale of freehold revisionary interests mean we continue to think there is better value elsewhere in the sector."
Berenberg reiterated its 'hold' rating and 120p target price on McCarthy.