Newly built home sales and prices have fallen and cancellation rates have risen in recent weeks in Persimmon, in further evidence that the property market is entering a recession.
The company, one of Britain’s largest homebuilders, said demand has waned and uncertainty has increased in the past six weeks, as rising mortgage costs and a looming recession hit people’s minds.
“Rising interest rates and broader economic uncertainty are impacting mortgage lending and customer behavior, and this is reflected in recent weekly sales rates and the forward sales position,” said Dean Finch, CEO of Persimmon.
Persimmons completed 9,974 homes in the five months to November 6, down from 10,728 the year before. It has stuck to its forecast of between 14,500 and 15,000 completions for the year as a whole, though cancellation rates have increased to 28% in the past six weeks, from 21% in the previous 12 weeks, “resulting in some uncertainty.”
In the past six weeks, the average weekly net sales at each outlet for private homes decreased to 0.48, from 0.6 in the 12 weeks of July 1 (and compared to 0.78 the year before). The average selling price over the same period is down 2%, and Persimmon said his prices were below the market average.
The government’s procurement assistance scheme has been closed for new orders, and those sales have accounted for five persimmon completions so far this year.
“The sharp deterioration in recent trading clearly indicates that profits in 2023 will be much lower,” said Ainsley Lamin, housing analyst at Investec.
Persimmon’s trading update echoed trends reported in recent days by lenders Nationwide and Halifax.
Nationwide reported that property values fell 0.9% last month, the first monthly decline in more than a year, as the Liz Truss government’s mini-budget caused financial market turmoil and pushed mortgage rates sharply higher. Halifax recorded a 0.4% drop in house prices in October.
Persimmon is reducing its land purchases and taking a “very selective approach… as we deal with the uncertain outlook for the UK housing market”. Land additions in 2023 are expected to be “significantly lower compared to 2022.”
Persimmon’s share price has more than halved since January, making it one of the worst-performing stocks in the FTSE 100 Index. The shares fell 6.5% Tuesday morning, making it the biggest drop on the index.
“It feels like reality is starting to catch up with homebuilders,” said Derren Nathan, head of equity research at Hargreaves Lansdown. “Persimmon is looking to get on the right track to deliver on its 2022 promise, but that could remain at risk if cancellation rates continue to deteriorate.” Interest rates rise and uncertainty The Economist is throwing their weight on both mortgage availability and customer behavior.It has been riding the storm lately, managing to ramp up building rates before the market turns and passing rates on to its customers.
Prices are likely to return in 2023, and if inflation continues like this, it will be a double whammy of margins. Persimmons are more protected than some, with better profit margins than many of their peers and a solid value offering to their customers.”