Two of Britain’s foremost housebuilders, Persimmon PLC (LSE:PSN) and Taylor Wimpey PLC (LSE:TW.), will face off against plummeting house prices and softening buyer demand in the first earnings season of 2024.
The latest Halifax house price index logged a 1% year-on-year fall in house prices as of November 2023, though this was a month-on-month improvement from the -3.1% fall logged in October.
Soaring mortgage rates and cost-of-living pressures have been the main causes of plummeting buy-side housing demand.
The outlook remains lukewarm, with Halifax Mortgages director Kim Kinnaird recently stating: “Overall, with the combination of cost of living pressures and interest rate levels that are still much higher than even two years ago, we will likely see continued mild downward pressure on house prices.”
Persimmon has already sought to temper market expectations with a full-year forecast of 9,500 completions for the period. In comparison, Persimmon completed 14,868 new builds across its portfolio in 2022.
Build cost inflation is expected to cause further trouble for the bottom line, so investors will be keen to see how Persimmon has mitigated this via headcount reduction and supply-chain management.
Taylor Wimpey is facing the same challenges, though the housebuilder was slightly more chipper in its forecasts.
In its latest trading update, the group reiterated full-year UK volume guidance in the range of 10,000 to 10,500 homes, compared to 14,154 in 2023.
Due to cost discipline and price optimisation, Taylor Wimpey predicts operating profit to be at the top end of the guidance range of £440 million to £470 million.
Persimmon and Taylor Wimpey – whose trading statements are due 10 January and 11 January respectively – will aim to bolster shareholder confidence with optimistic forward guidance, but their fates remain tied to the cyclical nature of the housing sector.