Persimmon shares were comfortably higher on Tuesday after the housebuilder increased their completions guidance for the year amid a slight uptick in activity.
The company said full-year completion guidance had been increased to 9,500 from 9,000 as private sales rates have improved to 0.59 over the past 5 weeks, up from 0.45 in the same period last year.
Persimmon shares were 3.8% higher at the time of writing.
Persimmon’s rally extended as the session progressed on Tuesday as investors ponder the dire situation the housebuilder is in and how much is already priced into shares. Notwithstanding a minor increase in completion guidance, Persimmon’s New Home Completions were 37% lower in Q3 2023 despite a ramping up of incentives.
“New home buyers are clearly exercising greater caution, and frankly who can blame them,” said Wealth Club’s Charlie Huggins.
“Mortgage payments for first time buyers have soared over the past 18 months. When combined with the limited availability of high loan to value mortgages and the end of the Help to Buy scheme in England, it’s no surprise that the housing market has seen a marked slowdown.
“How much worse can things get? Well, interest rates are widely considered to have peaked meaning the first interest rate cut is a matter of if not when. It can’t come soon enough for Persimmon. And it could mark the beginning of a strong recovery.
“We probably need to see a few interest rate cuts to entice first time buyers back into the housing market. But with inflation moderating that point has probably been brought forward.
“The one fly in the ointment could be house prices themselves. Prices have held up so far but this could be because there have been very few transactions. If the economy weakens further from here house prices could easily register further declines, causing further pain for Persimmon and its peers.”
The group said they see a ‘highly uncertain’ 2024 and are taking action on costs by renegotiating labour pricing and controlling material costs.
