FTSE 100 Stock Persimmon Slumps 7% As Update Reveals Sinking Housing Market

Housebuilder Persimmon slumped in Tuesday trading as it announced falling demand for its homes and rising cancellations.

At £12.35 per share the FTSE 100 business was last trading 7% lower on the day.

“Rising interest rates and broader economic uncertainty are clearly impacting mortgage lending and customer behaviour,” Persimmon said.

“This is reflected in our recent weekly sales rates and forward sales position.”

Drilling Down

Between 1 July and 7 November, Persimmon’s average net private weekly sales rate per outlet dropped to 0.6, it said. This was down from 0.78 in the corresponding 2021 period.

Persimmon said that the deterioration “reflects customers’ response to the macro-economic headwinds of increased interest rates and reduced mortgage availability, together with increasing cost of living pressures.”

During the past six weeks its average net private weekly sales rate per outlet has dropped to 0.48, it added. What’s more, average selling prices have fallen 2% from the 12 weeks from 1 July.

Persimmon’s forward sales beyond this year, meanwhile, stood at £0.77 billion as of 7 November. This was down from £1.15 billion a year ago.

On Monday building society Halifax announced that average residential property prices dropped 0.4% between September and October. This was the largest month-on-month fall for almost two years.

Mortgage costs have soared recently as the Bank of England has intensified interest rate rises. Last week policymakers at Threadneedle Street raised its benchmark rate by 0.75% to 3%, the largest single increase since 1989.

The number of mortgage products on the market has also fallen sharply as lenders have responded to rising uncertainty.

Cancellations Up

Persimmon has also seen a sharp uptick in cancellation rates more recently. During the last six weeks this picked up to 28% from 21% during the 12 weeks from 1 July.

Despite this, Persimmon said it remains on course to meet its 2022 volume target of between 14,500 and 15,000 homes. Build rates are up around 20% from this time a year ago, it noted.

Cost inflation at the firm was running at between 8% and 10% between early July and early November. However, Persimmon said that higher selling prices has allowed it “to manage the balance of inflationary pressures well.”

This has been helped by the contribution of its Brickworks and Tileworks manufacturing facilities, it commented.

No Guidance Given For 2023

Looking ahead, Persimmon said that “while we have already seen mortgage providers and customers start to adapt to higher interest rates, the full impact of this uncertainty on consumer behaviour is yet to be determined.”

The FTSE 100 firm praised the “good visibility on our outlet pipeline” and added that “we anticipate our outlet numbers will remain broadly in line with the current position throughout 2023, subject to planning consents achieved and market conditions.”

However, Persimmon said it is too early to provide guidance for 2023 given the rapid deterioration in market conditions. It did state though that “our current expectation is for fewer legal completions than in 2022 and this together with a deterioration in average selling prices will have an impact on 2023 margins.”

Persimmon struck a brighter tone for the medium to long term, however, stating that “the demand for new homes will remain strong.”

“Flashing Red Lights”

Commenting on today’s results, Mark Crouch, analyst at social investing network eToro, said that “Persimmon may be on track to deliver its 2022 volume target, but there are some flashing red lights in its latest trading update.”

He said that the issues causing a slowdown in the UK housing market look like they are set to persist.

“While there is optimism that the Bank of England will not have to raise interest rates as high as expected, the fact is mortgage rates and inflation will be higher for some time,” Crouch noted.

“That has a negative knock-on effect on people’s ability to afford new homes and, ultimately, leads to slowing — or even reversing — price growth.”

Royston Wild owns shares in Persimmon.