Something odd is happening to the FTSE 100 index. To keep it as a measure of the top companies, the constituents are reviewed each quarter. A company that has slipped to 101 may not be relegated but insiders that drop beyond 110 have to go and outsiders that rank in the top 90 most valuable are normally promoted from the second-tier 250 index. This week it was time to tip your bowler hat goodbye to Bradford & Bingley (B&B), the least valuable of nine banking groups in the top 100.

Fear is in the air, if not on the ground, that the housing market is over the top, activity will fall, bad debts will rise and prices will go limbo dancing. Not good for a specialist mortgage lender such as B&B.

Relegation is a blow to pride if not the share-price killer it once was. Promotion still bestows status in the business world. That makes it more intriguing that B&B is replaced by Barratt Developments, now the UK’s biggest housebuilder. The mortgage lender is now regarded as a worse proposition than what used to be called the speculative builder.

Barratt has made it via merger rather than favour, after a £2.2 billion takeover of Wilson Bowden. It is not the first, nor probably the last builder, to join the top 100. Persimmon, the pioneer of bids in the sector, has been established since buying Westbury.

Both of these will be leap-frogged by the proposed Taylor Woodrow/Wimpey combine. Rival predators may yet intervene in the nil-premium merger after ten weeks’ silence.

In 2000, near the height of the dot-com boom, housebuilding shares traded at seven times earnings when profits were growing strongly, which is why they were backed here, as they have been several times since. Solid sectors, literally bricks in this case, were neglected as funds poured money into Marconi.

Seven years later Persimmon shares have risen by 600 per cent, Wimpey by more than 400 per cent and Barratt by more than 300 per cent. Even Taylor Woodrow, which timed an acquisition poorly, has virtually trebled. Over the same period the FTSE 100 has risen by 4 per cent and the 250 by 94 per cent. Value investing has paid, as in utilities. And bidders have come in to buy marketable assets, in the form of building land, and strong cashflow.

Ten years ago there were more than 30 quoted housebuilding companies. Most were tiddlers. Bigger groups combined housing with general construction and civil engineering. Two thirds have disappeared from the stock market. The housebuilding industry has prospered and been more stable than expected, partly because it controlled supply. Instead of each company expanding output to raise profits, leading builders have grown by taking over others. Berkeley Homes made a leveraged buyout of itself on behalf of shareholders. Consolidation has not helped the housing shortage but the industry has skilfully avoided a repeat of the 1980s’ boom and bust.

That memory, when mass unemployment and repossessions met peak output, hung over the sector for 15 years. It lifted after builders sustained only modest damage when the last house price boom was halted by interest rates in 2004. Wimpey’s profit margins, which had expanded from 13 per cent to 17 per cent, fell back to 13. Barratt and Persimmon did better. Recent troubles in America, where their interests are much smaller, have been more painful for Taylor Wimpey’s would-be partners.

These new groups can control complex brownfield developments or conversions. They can contemplate new off-site construction and see “carbon-neutral” homes as an opportunity, not just another daft regulation. Housebuilders, along with big commercial property developers, make up the most important new sector of the FTSE 100. Their ratings have edged up to about 10.5 times earnings, still well below the market average but now on a par not only with mortgage banks but also with Royal Bank of Scotland or Barclays, which have much higher dividend yields. Banks now offer better value – but maybe run greater risks for less growth.

Times Recommends

• How to sell your home in a downturn
• How to boost your spending power
• Unemployment benefits explained