Housing bulls have it wrong

Two stories stand out this week. The first is the fact that the City is once again completely gripped by bid fever. A few weeks ago in our cover story, we looked at how the low cost of borrowing around the world is driving private equity firms and companies to snap-up anything in the market that looks remotely undervalued, and with bids about for everything from O2 to P&O the trend shows no signs of abating.

The second story of interest is the figures out from Nationwide showing that, by its measures, house prices are on the up again: if you believe the mortgage company's figures, prices jumped 1.3% in October, pushing the annual rate of growth up to 3.3%. The newspapers faithfully reported this news with headlines suggesting that all is now well with the world and the housing bulls jumped on it as clear evidence that the market is back on form.

But this all leaves me a bit confused. If both these stories are true that anything cheap will get snapped up by the horde of hungry buyers knocking around in the market and that house prices aren't falling why aren't the private equity firms tripping over each other in a mad rush to snap up the mainstream house-building firms? They're certainly cheap (the sector trades on an average p/e ratio of around seven times, against a FTSE All Share average of more like 14 times), and, if you think, as most of the country appears to, that house price transactions are going to hold up and that prices are too, surely they look like a hell of a bargain? So what's the problem?

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My guess is that the world's private equity buyers don't just look at the data that comes from the likes of Nationwide (which has something of a vested interest in maintaining confidence in the housing market). Instead, perhaps they put more store by the numbers from Hometrack, which show that house prices, far from rising in October, actually fell, for the 16th month in a row. Or perhaps they've noticed that the average price of a new home in Britain (the most relevant number for the house builders) has fallen more than 5% over the last year. Or maybe they're concerned about rising levels of home repossessions: repossession orders over the last three months are up 55% on the same period last year. Consumers are cutting back everywhere retail sales have fallen for eight months in a row but it seems that, even if we splash out less, many of us still can't pay our mortgages. It seems to me that private equity might have added all this up and decided house-builders aren't anywhere near cheap enough.