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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."

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