Persimmon: New home completions down a third as UK housebuilding woes continue
The struggles of Britain’s housebuilders continued this morning with Persimmon’s new home completions down by a third, and its cash more than cut in half.
Persimmon updated markets this morning on its progress during a “challenging period” in which the building of new homes has stalled, amid waning demand.
High inflation and the cost of raw materials have made it more expensive to build houses, while higher interest rates have suppressed demand for buyers.
The firm said in 2023 it completed the building of 9,222 new homes, down 33 per cent from the previous year which was just shy of 15,000.
Following its results, Persimmon’s share prices had a shot in the arm through the course of the day, rising by more than four per cent after 2pm, to 1,457.50.
While its figures were not that encouraging, they were fully expected, and the company said it had managed the challenging market well. The housebuilder predicted in November, the market would remain “highly uncertain” during 2024.
There were also signs of it stabilising somewhat, with supplier SIG reporting yesterday that it expects profits to be at the upper end of its expectations.
London has however been an outlier in the housing market, with average prices well ahead of the rest of the country, despite falling steeply in recent months as rates have been held.
In a bid to address the chronic lack of homes in the capital, at the end of 2024, housing secretary Michael Gove said “radical action” was needed, as London only built an average of 38,000 net additional homes a year “in the last few years.”
Last week, it was reported that more than two-thirds of a government fund aimed at creating thousands of new homes in the UK remains unspent, despite launching over six years ago.
Persimmon has benefitted from rising house prices outside the capital, where its operations are focused. The company reported a marginally higher average sale, of more than a quarter of a million pounds, up three per cent on the previous 12 months.
After the rocky road last year, Persimmon said its market conditions will “remain highly uncertain during 2024, particularly for first-time buyers”, but it noted easing mortgage rates as Brits look to buy more homes. It added that the “longer-term demand outlook for new homes remains favourable.”
Dean Finch, its chief executive said the company “performed well in challenging market conditions, delivering completions ahead of expectations in 2023.
“We have successfully balanced our need to control costs, whilst investing in the business to position it for sustainable growth when conditions improve.”
Oli Creasey, property research analyst at Quilter Cheviot said: “Persimmon saw strong recovery in its sales rate in the final quarter of 2023, traditionally a slower period. A sales rate of 0.69x (compared to 0.59x in the first half and 0.48x in the third quarter) helped the company beat consensus on the number of homes sold, completing just under 10,000 homes in the year. “
Creasey added: “The outlook for 2024 is similarly mixed. While a pickup in interest from buyers late in 2023 is likely to continue, Persimmon’s forward order book is largely unchanged vs 2022. Market conditions are expected to remain ‘highly uncertain’ with an election looming, although easing mortgage rates and moderating build costs should prove beneficial.”
Persimmon’s share price has had a good time of it in the last 12 months, up more than nine per cent.