Persimmon, one of the UK’s largest housebuilders, has released a third quarter trading update which can be viewed below:
- New home completions down 37%
- Private selling prices holding up so far, up 2%, albeit with increased incentives, up 3.6%
- Full year outlook unchanged, market conditions set to remain challenging
Charlie Huggins, Manager of the ‘Quality Shares Portfolio’ at Wealth Club, commented:
“New home buyers are clearly exercising greater caution, and frankly who can blame them.
Mortgage payments for first time buyers have soared over the past 18 months. When combined with the limited availability of high loan to value mortgages and the end of the Help to Buy scheme in England, it’s no surprise that the housing market has seen a marked slowdown.
How much worse can things get? Well, interest rates are widely considered to have peaked meaning the first interest rate cut is a matter of if not when. It can’t come soon enough for Persimmon. And it could mark the beginning of a strong recovery.
We probably need to see a few interest rate cuts to entice first time buyers back into the housing market. But with inflation moderating that point has probably been brought forward.
The one fly in the ointment could be house prices themselves. Prices have held up so far but this could be because there have been very few transactions. If the economy weakens further from here house prices could easily register further declines, causing further pain for Persimmon and its peers.
On balance, we’re probably nearer the end of the housing market downturn than the beginning. But we will need to see interest rate cuts and perhaps further house price declines to build the foundations for a recovery.”
Adam Vettese, analyst at trading and investment platform eToro, says:
“Higher interest rates have decimated housing market activity, something evidenced by the shocking year-on-year comparables in Persimmon’s latest update.
New home completions are down 37% YOY in Q3, sales per outlet are down nearly a quarter and so too is the housebuilder’s forward sales pipeline. Markets now expect interest rates to stay higher for longer, with some economists not predicting the first fall in borrowing costs to occur until at least the back end of next year – if not later. That means the housing market is in for another difficult 12 months, although the fact the Bank of England’s Monetary Policy Committee has held rates at its past two meetings at least provides some stability. This may lead to a gradual uptick in housing market transactions but it’s safe to say the post-pandemic boom times are well and truly over.”
