Proactive Investors - Run By Investors For Investors

Persimmon hails progress but soaring house prices spark caution

The FTSE 100-listed group said it had another strong year in 2015
Persimmon hails progress but soaring house prices spark caution
Economists fear that failure to build more houses may spark a price bubble

Persimmon (LON:PSN) became the latest housebuilder to report strong trading on Thursday - but soaring house prices stoked fears that it could all end in tears.

The FTSE 100-listed group said in an update for the 12 months to December 31 that it had had another strong year in 2015.

Legal completions rose 8%, revenue lifted 13% at £2.9bn and average selling prices gained 4.5% to £199,100.

The value of its forward sales at the end of last year of about £1.1bn was 13% ahead of the previous year.

Persimmon said: "This provides a strong platform for the group to continue to execute its long-term strategy."

It was the latest upbeat assessment of trading from the industry, which is benefiting from demand fuelled by the UK's chronic housing shortage.

But economists warn that as long as supply fails to catch up with demand and house prices outstrip incomes, soaring prices threaten market stability

Figures from the Halifax house price index on Thursday showed prices rose 1.7% month-to-month in December, well above the consensus of 0.5%.

Pantheon Macroeconomics said the sharp rise showed that moves by the Bank of England to stop the market overheating were inadequate.

The economic research group's Samuel Tombs said the three-month average level of prices was 9.5% higher year-over-year, four times the increase in nominal wages.

He said: "The fall in mortgage rates has enabled households to take on more debt in the short term, while the limited stock of homes for sale has led to intense buyer competition.

"With wage growth set to strengthen in response to the decline in labour market slack, interest payments taking up only a small fraction of homeowners' income and supply shortages unlikely to be resolved quickly, we expect 2016 to see further strong price gains."

Managing director of Dragonfly Property Finance, Mark Posniak, said: "With supply as weak as demand is strong, it's same old, same old on the house price front.

"Prices continue to rise, if at a slightly steadier rate over the quarter. The 1.7% rise in December drives home the extent of demand.

"Looking into 2016, it's hard to see anything other than a continuation of the current trend of steadily rising prices, especially with interest rate rises in the near future unlikely."

Jonathan Hopper at Garrington Property Finders said demand was still surging, with interest rates set to stay low for some time and buyer confidence strong.

"By contrast the squeeze on supply is getting worse – with new instructions falling for the tenth month in a row in November," he said.

"While the Halifax data confirms that in 2015 prices rose fastest in London or within commuting distance of the capital, early activity in 2016 suggests demand elsewhere is picking up considerable momentum.

"The South East does not have the monopoly on low supply – and as demand becomes broader-based, so too should price rises."

View full PSN profile View Profile

Persimmon Timeline

Related Articles

April 11 2018
Some 80% of Belvoir’s revenue comes from letting, which insulates it to a large degree from the ‘disruptors’

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use