Thursday, Apr 24, 2008
Wow! Persimmon stops all new developments
Bloomberg: Persimmon Home Sales Drop 24%, Defers Site Openings
Persimmon Plc, the U.K.'s largest homebuilder by market value, said sales have dropped 24% so far this year and new development has been halted because of sliding demand.
Revenue dropped to £1.37billion from £1.8billion pounds and volumes have declined 18%, the York-based company said today in a statement.
"It is difficult to predict when the market will improve,'' the builder said in today's statement. ``Against the current backdrop, we have postponed the commencement of scheduled new sites until the mortgage market improves.''
Persimmon dropped the most in five years in London trading.
Posted by little professor @ 08:56 AM (1279 views) Add Comment
26 Comments
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1. uncle tom said...
All the big name developers appear to be in trouble, to varying degrees - Barratt in particular.
I'm not convinced that Barratt will survive, and there's no obvious takeover bidder sitting in the wings.
If they go to the wall, the receivers would take their time dismantling the business before selling the assets, including land and part-finished developments, probably by sealed bid.
That might well occur at the bottom of the market, and could deliver some stupendous bargains...
2. renting2 said...
If lack of housing supply was a reality that would hold house demand and prices up, then builders like this would be more than happy to build for Britain.
3. talking rot said...
But, but, but, but
There is a shortage of homes in the UK; there are all those immigrants, divorced couples, permanently single-types who now need a home each .......
More proof, as if it was needed, that the whole Supply-vs-Demand arguement was flawed.
UK house prices were driven by easy availability of cheap credit - although supply vs demand did have a role to play, it was never as big as made out to be.
Hope I get one of the bargins, UT!
4. planning4acrash said...
Talking rot, the role of supply & demand is that the sector with the tightest balance provides the most security for investorsof hot $, so attracts a boom. The sector's shortage need not be particulary pronounced relative to others to trigger the boom.
5. planning4acrash said...
When will the market kick off again? Simple, when house prices match the deposits and mortgages available to investors.
6. paul said...
Good point renting2 (TR, you jumped on it pretty quick too! ;-D)
The very fact that new building plans are suspended completely invalidates the argument that demand for housing outstrips supply in the UK.
7. techieman said...
talking rot - yes there is a demand / supply imbalance but that was reflected at prices much lower then they are now. The rest is as you say bubble territory.
8. stu_b said...
techieman,
If I could ask, if some of the HPI above long term trend is due to real supply/demand imbalances, how would you 'divvy up' the excess above long term trend between valid inflation/bubble inflation?
9. it_is_going_with_a_bang said...
There is still demand and pressure out there. The issue is affordability. The current prices are just so hugely inflated and beyond the realistic reach of too many people.
But that demand is mainly from average salary people. Just because people 'want' things doesn't mean they can afford to buy it. That is really where the argument of demand falls down.
If the demand was not there then prices would fall heavily and quickly.
The flood of people from Eastern Europe did have a huge affect on the rental market over the last 4/5 years.
Everyone thinks that the government miscalculated the numbers. Think of it another way. If they turned around and said they were going to allow 500,000 people into the country every year for a few years do you think that it would be seen as acceptable in advance? Probably not. Far better to just pretend it's 'just happened' and make sure there are no real methods of calculating it.
Welcome to New Labour.
10. Cheekie Charlie said...
Why don't they just drop their prices to current market conditions? The build cost of an new house is as little of a third of the selling price! Or better still sell them at a loss to offset the huge profits they've made over the last 5 years and ask for a Government bailout as this will start to honour Gordon Browns pledge to build 3 million affordable houses!
11. taffee said...
There is demand for bentleys, doesn't mean the average joe can afford one or has enough to run one.
12. renting2 said...
Buying and running a Bentley? That's just what Mastercard is for.
13. uncle tom said...
A couple of years ago I read through the methodology behind the official calculations for housing 'need'.
It makes some odd assumptions, such as the presumption that children living in flats are in 'need' of re-housing, and makes no allowance for the fact that some people actually like living in a relatively crowded house.
Most startling though is that affordability is not considered at all..
14. uncle tom said...
Who is reading this blog??
Barratt Developments are currently the worst performing stock on the FTSE 350 today - now over 11% down on the day..!
15. icarus said...
Full employment, IRs much lower than they were in the early 90s, builders not building and therefore adding to the pressure of demand on limited supply. All that's missing is confidence. So any HPC must be the fault of HPC.co.uk
16. Planning4acrash said...
Icarus, I can smell the feathers on your dainty wings singe as you fly into the sun(set)!!
17. techieman said...
Stu - that is a great question. Which is difficult to answer in both time and space (i mean space on the blog NOT time continum) and also - suggest you look at Andrew Fallons work (which i think is on here to understand the general concept). Actually its also imperically difficult to answer and would be a guess by me at least i.e % due to proper demand and % due to bubble but im pretty sure im right! - Its a question that some economic modellers might want to take into account, but presumably thats the % discounts they are estimating (i.e. back to a demand / sup[ply equilibrium or even slightly overcooked to the downside). Yes affordibility is an issue too but that would be included in the model and based on assumptions re availability of credit, wage growth etc. etc. I would love to see a thesis on this - any economic students out there about to prepare a thesis?
18. techieman said...
stu - see the economic papers and sorry its Andrew Farlow (not fallon) http://www.housepricecrash.co.uk/resources-economic-papers.php, also take a look at the model : http://www.housepricecrash.co.uk/pdf/model-of-the-property-cycle.pdf
19. malct said...
15. icarus said...
Full employment, IRs much lower than they were in the early 90s, builders not building and therefore adding to the pressure of demand on limited supply. All that's missing is confidence. So any HPC must be the fault of HPC.co.uk
Of course it's HPC.co.uk to blame. It has nothing to do with the availibility of cheap credit because of the apparently planned temporary insolvency of the banking industry. Sorry icarus, not sure of your real stand on this, hope for your sake you are joking. Of course you are!
20. taffee said...
full employment.....well 20% employed by government
Interest rates are lower than 1991 but in 1988 you could get 7% fixed rate AND you had 25% miras tax relief on first £30,000
There are 630,000 empty properties in the uk
21. uncle tom said...
stu / techie
Something you need to ponder is the fact that until about 1980 - not that long ago really - new houses generally sold for much more than old ones, and insurers had to remind policy holders to insure for re-building cost, not market value (which was less!)
We have lost sight of the concept of housing depreciation but there is no reason why it shouldn't return - why shouldn't second hand houses be much cheaper than new ones?
22. Soundman74 said...
I was wondering, how long can EA's and developers alike call a property a 'New Home'? we've at least half a dozen new homes and new retirement flats in the small village where I live that have been on the market for over two years now. Naturally the developers' argument when applying for planning, contructing these buildings and ultimately in my view destroying the look of the village center was that there was a shortage of affordable homes in the area - well guess what, there still is!
One developer who has recently taken to advertising on our local radio station is even offering 100% part exchange! the ad goes on to say - 'yes that's right, we will give you 100% of the current market value for your home'. So say I'm a posistion (which I'm not btw) where I want to downsize I have a half a million (market value) 5 bed house and want to buy a 2 year old 'New' home under this scheme marketed at £390,000 - say. would the developer really be parting with £110,000? Does anyone know how this would work?
23. Dave The Dog said...
Uncle Tom - the way that the majority of new houses are "thrown" together these days any new houses should be cheaper than a well established second hand one. The houses that have been built on the mass produced estates are lashed together with internal stud walls, cheap materials and poor workmanship. Ask any builder that has worked on site for more than 25 years about how standards have slipped during this (and also in the last 80's) boom. These houses will not last aslong as traditional built houses!
24. icarus said...
@ malct. Yeah. Hadn't heard any Fionnuala-speak for a while. Just reminiscing.
25. Chasbmw said...
I would suggest that as of June 07 approx 20% of house prices was down to a 'speculative premium' driven by a general expextatction that house prices would continue to increase and the BTL investors.
If you look at average earnings and current mortgage restrictions on lending and calculate what average Joe can buy, then prices have a long way to come down.
Even worse if you run the figures on a BTL..............
26. uncle tom said...
Chasbmw,
Until recently, the homebuilders have been making profits at around the 20% of turnover mark, which initially looks quite healthy. However, when you consider how much of that has been down to the value appreciation of their land holdings between the date of purchase of a site to the date of sale of the completed homes - you realise that they've been playing a one way bet.
If property prices were to simply stall, they would probably record small profits or small losses - nothing very exciting. But with property prices falling, they have a critical problem.
Barratts bought Wilson Bowdon a year ago, at the worst possible time, so they are debt heavy with depreciating assets, a pretty dire scenario.