PERSIMMON has reported a fall in average selling prices and an increase in cancellations amid “real nervousness” in the housing market.
It comes against the backdrop of spiralling interest rates and a tightening mortgage lending squeeze. The housebuilding giant saw its shares slide six per cent in early trading following the update.
“Persimmon is clearly feeling the impact of rising interest rates which are making mortgages more expensive and causing homebuyers to think twice about moving,” said Julie Palmer, partner at Begbies Traynor.
The FTSE 100 firm said the average weekly sales rate per outlet in the private market dropped to 0.6 between July 1 and November 7, down from 0.78 a year earlier, and fell further to 0.48 in the most recent six weeks.
Customer cancellations of sales have risen to 28% in the past six weeks, from 21% in the previous three months.
The firm said that, in terms of active outlets on which it is building, there are 34 sites in Scotland. The number of sales outlets it is currently selling from is 32.
READ MORE: Persimmon shares down as fewer homes completed
It said the tougher selling conditions saw average house prices drop by around 2% in the six weeks to November 7.
The group’s forward sales beyond the end of 2022 decreased to £770 million from £1.15 billion this time a year ago.
Persimmon said it remains on track for between 14,500 and 15,000 new-home legal completions in 2022, but warned that it expects fewer completions in 2023 and said that this, as well as lower selling prices, is likely to hit its profit margins.
Dean Finch, Persimmon chief executive, said the firm started the year “in a strong position with healthy forward sales and good weekly sales rates” which continued throughout the first half.
“This, together with our increasing levels of build efficiency, means we are well positioned to deliver new home completions for the year within our previously stated target range, while maintaining an industry-leading housing margin, despite the recent deterioration in market conditions leading to increased cancellation rates."
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However, he added: “Rising interest rates and broader economic uncertainty are clearly impacting mortgage lending and customer behaviour and this is reflected in our recent weekly sales rates and forward sales position.”
Ms Palmer said the cancellation rate rise “shows there’s real nervousness in the market”, adding: “Management remain positive, saying they still expect to hit their target of delivering of between 14,500 and 15,000 new homes this year, and the company’s properties generally sell for less than the average market price, meaning it might be a little better insulated than some.
“But it’s a very tough environment right now, with Persimmon’s bosses battling more expensive materials and labour costs, with inflation driving them up by between 8% and 10%.
“There’s no doubt there’s a housing shortage in the UK, and Persimmon is confident in the long-term that demand will remain strong. It’s the short and medium term that’s the issue: management say the situation is too uncertain to give guidance for 2023 other than they expect fewer sales, lower selling prices and squeezed profits.”
Samuel Mather-Holgate, of Mather and Murray Financial, said: “The economy is in recession so people are less wealthy. Interest rates have been jacked up, so owning a home is more expensive. These factors will also mean that the first half of next year will be seriously tough for housebuilders and stock will take longer to shift and at a lower price.”
Oli Creasey, equity research analyst at Quilter Cheviot said the Persimmon trading statement “captures the mood of the UK housing market - the company is not panicked, but is preparing itself for worsening conditions”.
Shares in Persimmon closed down 5.22%, or 69p, at 1,254p.
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