Housebuilder anticipates market conditions to remain highly uncertain in 2024
Persimmon, one of the UK’s largest housebuilders, said it would build more homes this year than it previously expected despite a 37% fall in its new home completions during the third quarter of this year.
According to the housebuilder, it is now on track to deliver around 9,500 new home completions in 2023, up from its half-year guidance of 9,000.
“Trading in the period was in line with expectations and pricing was broadly stable,” Dean Finch (pictured), group chief executive at Persimmon, commented on the company’s Q3 trading statement. “We are on track to deliver around 9,500 quality new homes in 2023 with operating profit in line with expectations and at an operating margin similar to the first half.”
Persimmon, however, anticipates market conditions to “remain highly uncertain” in 2024 as higher mortgage rates and costs of living continue to turn off property buyers.
“New home buyers are clearly exercising greater caution, and frankly who can blame them?” remarked Charlie Huggins, manager of the quality shares portfolio at Wealth Club. “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.”
“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.”
For now, though, “the bloodbath continues for Persimmon,” said John Choong, senior equity research analyst at Investing Reviews.
“One of the UK’s biggest housebuilders continues to suffer from high mortgage rates with demand getting squeezed,” Choong added. “The developer’s current forward sales position increased to £1.62 billion from £1.40 billion in Q2. This provides a glimmer of hope that demand has hit the bottom and is starting to tick back up again.
“With the board also upgrading their outlook for completions this year to 9,500 homes from at least 9,000 homes, Persimmon has done relatively well in the face of its toughest year since the global financial crisis.
“And with mortgage rates coming down as more rate cuts are being priced in, Persimmon is building the foundations of a potential comeback to the FTSE 100 as it sets out higher sales targets next year with the opening of around 30 gross new selling outlets in early 2024.”
Finch also assured that “while the near term is likely to remain challenging,” the housebuilder will remain disciplined on costs as they “continue to position the business for growth when the market recovers.”
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