The shares of companies operating in the UK real estate sector are falling today after gloomy indications from the board of one of the British Isles' largest developers, Persimmon, and a seventh consecutive month of falling house prices and a weak reading on the volume of mortgages taken out in February. Persimmon (PSN.UK) is already losing close to 10% but UK giant Barrat Develompents (BDEV.UK) and many others in the industry are also under pressure:
- Average UK house prices are falling at the fastest pace since 2012 and are down nearly 3.9% from their 2022 peaks
- Annual house price growth in the UK turned negative for the first time since June 2020 when the market was hit by a pandemic
- Mortgage lending volumes turned out to be more than 30% below forecasts
Persimmon warned of a difficult year and expects a further decline in profits, the company cut its dividend by 75%. Management believes sales metrics suggest lower project completions in 2023, although the company posted decent profits in 2022. Economists at Nationwide expect a further weakening of the real estate market in the face of the weakening financial condition of British households. Demand could also be weighed down by a possible weakening of the labor market, and uncertainty is causing developer activity to slow. In addition, BoE Governor, Bailey has indicated that another bank rate hike may be appropriate, which could further weaken loan demand and lead to a deeper slump in the property and mortgage market.
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- Mortgage volumes fell 15% m/m (more than 30% from forecasts) despite a 10% higher number of mortgage applications approved. It amounted to £2.5 billion versus forecasts of £3.23 billion and £2.9 billion previously.
- The lower figure has to do with overheated home prices and the continuing prospect of economic uncertainty in the Isles. It may also be partly driven by falling property prices or the fact that, in an environment of higher rates, bank requirements are rising, so statistically stronger consumers (higher down-payment) may be getting them;
- The number of approved loan applications amounted to 39,500 thousand turned out to be nearly 10% higher than the previous 35,612, beating forecasts by about 1,000 but with the slowing economy and developers' gloomy prognosis, the result may turn out to be close to the 'maximum'.
Persimmon (PSN.UK) shares, D1 interval. The price is around historical support levels, below levels from the covid pandemic panic which may encourage aggressive bulls. However, a dynamic drop below the 100-day moving average (black line) may indicate an advantage for sellers. The next psychological support level is GBP 10 per share. Source: xStation5
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