The Persimmon (LSE: PSN) share price is up 13% on the week, as I write.
It’s still down 53% over past five years, though. So there’s some way to go yet to get back to business as usual.
Inflation down
So what might help? Well, June inflation dropped to 7.9% year on year, from 8.7% posted in May, and that’s lower than expected.
It should ease the pressure on the Bank of England for more big interest rate rises. And in turn, fears of mortgage rates getting out of control should settle a bit.
According to financial information service Moneyfacts, mortgage deals have already got a little bit cheaper. It’s not a lot, but they’re moving the right way.
Don’t panic
I’ve seen headlines screaming about house prices crashing 25%, or even 35%, in the next five years if today’s rates hold up.
But I just don’t see high interest being here for five years. And I think stories like that are blatant scaremongering.
Still, fear and panic are good for one thing. They help push share prices down. And that can lead to some nice cheap buys for those of us who want to hold for the long term.
When to buy
Ace investor Warren Buffett urged us to “be greedy when others are fearful“. And Sir John Templeton, another favourite of mine, reckoned the best times to buy are those of maximum pessimism.
I think we might actually be past that point now. But it will surely take time for things to convert through to company earnings and share prices.
Persimmon outlook
What does the rest of the year look like for Persimmon? It’s a bit hard to tell, as we won’t have H1 results until 10 August.
The last update we have only covered the period to March, before interest rates climbed faster than we’d feared. In the first quarter, new home completions dropped by 42% from the same period last year.
Still, chief executive Dean Finch did say: “If sales rates continue at the levels seen year to date, we would expect full-year 2023 volumes to be toward the top end of the previously indicated range of 8,000 to 9,000 completions.“
Forecasts
Forecasts see earnings dropping quite sharply, but picking up again from next year. Free cash flow looks like it should be fine, and dividends should still be covered by earnings.
Speaking of dividends, the forecasts say 5.1% for this year. Some show it a lot higher, but they haven’t reflected the end of the past few years of special dividends yet.
If that’s the worst that things will get at a time when we’re supposed to be in meltdown, I don’t see what the panic is about.
More pain?
I might be tempting fate there. Because yes, things could indeed get worse. My main fear is that high interest rates could be with us for a while yet. And share prices might not quite cover that risk.
The price could certainly continue to jump. But even if the share price should face more weakness this year, it’s still a long-term buy-and-hold in my ISA.
