Is Persimmon's glass half empty?
Persimmon one of the UK's largest housebuilders updated investors on its trading performance this morning
What Persimmon said
Challenging second half, with housing market conditions deteriorating during the fourth quarter.
Higher mortgage rates, inflation and the end of Help to Buy will have an adverse impact on the outlook for 2023
The longer-term demand for new homes remains strong
Persimmon normally powers out of the blocks in January with positivity, but today's trading statement is the first time in a long time that Persimmon's glass has looked half empty rather than half full.
The bad news
It's tough out there, and Persimmon wasn't pulling any punches. Like Barratt yesterday, sales rates are down and this has led to a significant reduction in forward orders (down by 36% overall, with the private market forward sales down 56%).
Trading performance has weakened across all geographies with the most pain felt in the southern regions, especially on sites where Help to Buy was most widely used.
It is likely to get worse before it gets better, in our view. A housebuilder's activity in the land market is always a good indicator of market conditions. Persimmon is buying less land and taking action to renegotiate or pause the start of around 30 sites.
The outlook statement is very clear: 'it is too early to predict when there will be a recovery in demand.'
The good news
Housing building is a long-term game and the long-term demand outlook for new homes remains positive. The structural demand and supply imbalance in the UK housing market will not just disappear overnight.
Market conditions are tough, but Persimmon has seen off worse trading conditions before. The Credit Crunch saw a much more severe reduction in demand and Persimmon's Balance Sheet is much stronger now than it was then.
Whilst we doubt those seeking jam tomorrow will be few in number, we suspect that share price weakness in the first quarter might provide the once-in-a-cycle opportunity to purchase shares that every investor craves.