Optimism of housebuilders is misguided

PERSIMMON tried to sound an upbeat note yesterday, insisting it expected the housing market to pick up over the rest of the year. We don’t share the housebuilder’s optimism.

<a href="/house-prices">House prices</a> have been moving sideways for the past six months and mortgage lending remains tight. Would-be first-time buyers, unable to find the 20 per cent deposit that has become de rigueur these days, are taking inspiration from their continental neighbours and opting to rent instead. Then there is the elephant in the room: artificially low interest rates that will have to be hiked at some point.

State schemes like FirstBuy, which will enable 10,000 first-time buyers to secure a mortgage with a five per cent deposit, are nothing more than a very small sticking plaster. House prices, still far too high in our view, are long overdue a sharp correction.

So it is hardly unsurprising that Persimmon has hit a soft patch, although it has arrived earlier than many expected. Unit sales fell five per cent year-on-year in the first half while the average selling price dipped from £168,936 to £162,000.

Perhaps most worrying is Persimmon’s exposure to the provinces. The firm has virtually nothing for sale within the M25, save for a handful of new-build flats (a phrase that fills most developers with dread these days) in Uxbridge.

When the housing market does turn south, the regional housebuilders like Persimmon and Taylor Wimpey will suffer most. For those investors that do want to take a punt on the housing market, Galliford Try (which gave the market a far more reassuring update yesterday) is a better pick.