We find value in the sector in spite of it outperforming the All Share by 7% in the last three months. There is scope for upside surprises as trading continues to strengthen and leading indicators remain supportive. Recent updates confirm that sales rates have been improving despite limited stock availability and price inflation is becoming more evident in the new build market. We upgrade our estimates and target prices as we are slightly more optimistic on house prices and the outlook. Persimmon is our large-cap top pick given its sector-leading returns, and we find value more widely in the smaller housebuilders, which offer more attractive valuations. We forecast sector earnings to increase by 8% per annum in FY21-24E, with a dividend yield of 6% in December 2022E.
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