The Persimmon plc (LON: PSN) share price has risen 15.8% in the past week as investor sentiment towards the housebuilding company turned positive. The lack of recent significant news releases from the company has left it susceptible to investors' whims towards the sector.
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The company’s fundamentals show that its stock price has fallen 33.64% over the past twelve months, while its year-to-date decline is much lower at 4.84% following the recent rally. The homebuilding company has seen its stock fall over 50% in the past five years.
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The homebuilder has seen its business hit hard by the high interest rate environment in the United Kingdom that has made mortgages more expensive for homebuyers, which could translate into lower demand for homes.
The record-high inflation witnessed in the UK has also impacted the prices developers pay for raw materials, which will likely lead to an increase in the prices of new homes built for the next two to three years. Hence, Persimmon’s business will be in jeopardy from higher prices.
Still, the high demand for homes in the UK remains for many more years as the number of home people looking to buy a home far outstrips the number of homes available in the UK. The growing number of families is also a crucial driver of housing demand in the country.
Some analysts believe that house prices will likely fall by up to 25% over the next five years as record-high inflation persists and the Bank of England is forced to maintain its high interest rate for much longer. However, this is very unlikely.
The record-high inflation witnessed in the UK this year and last year is unlikely to persist for another five years. We are likely to see inflation starting to taper out sometime next year, with further declines in the next two to three years, invalidating the above concerns.
Therefore, even as operating margins for homebuilders are squeezed due to rising costs, I remain optimistic about Persimmon and other housebuilders based on the industry’s fundamentals, where demand far outstrips supply.
*This is not investment advice.
Persimmon share price.
The Persimmon share price has risen 15.83% in the past week on upbeat investor sentiment. What’s next?
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