Persimmon slumps on grim 2023 outlook as U.K. house prices crumble

© Reuters.

By Geoffrey Smith 

Investing.com -- Persimmon (LON:PSN) stock slumped on Wednesday after the U.K.-based homebuilder said it expects to build fewer houses this year and make less profit on each one, as the highest interest rates in over a decade buffet the housing market.

“The sales rates seen over the last five months mean completions will be down markedly this year and as a consequence, so will margin and profits, Persimmon warned as it presented its 2022 results.

It was unable to provide firm guidance, citing the high ongoing level of uncertainty. Morgan Stanley analysts said however that the update indicated that pre-tax profit is likely to fall by more than half this year to around £300 million (£1 = $1.2075).

Persimmon shares fell over 10% by 04:15 ET (09:15 GMT) on the news to a seven-week low. The update also dragged down other stocks in the sector, with Barratt Developments (LON:BDEV) falling 3.4%, and Taylor Wimpey (LON:TW), Crest Nicholson (LON:CRST), and Bellway (LON:BWY) all falling by over 2%.

The update is the latest in a string of grim news from the U.K. housing market, which has gone into sharp decline since the Bank of England started a rate hike cycle that has made the U.K.’s long-standing problems with housing affordability considerably worse.

U.K. house prices fell at their fastest rate since 2012 in January, according to figures released on Wednesday by mortgage lender Nationwide, dropping 0.5% on the month and 1.1% from a year earlier.

Persimmon completed 14,868 houses last year, up 2% from a year earlier, but net profit fell nearly 25% to £731M as the company was forced to spend heavily on fixing up sub-standard work in previous years, notably with regard to the removal of potentially dangerous cladding from its buildings. Underlying operating profit was up 4% at £1.01 billion.

The group said it will scale back its land purchases this year and implement a range of other cost-cutting measures to shore up profitability, in anticipation of further weakness in selling prices. 

There was additional evidence of the pressure on the housing market Wednesday from the estate agent sector, as Purplebricks (LON:PURP) put itself up for sale, saying it will consider bids for the company as part of its ongoing strategic review.