Persimmon in alert as homes gloom mounts

The gloom over the housing market deepened today when one of Britain's biggest builders warned demand for new homes is tumbling.

Persimmon said reservation levels were down sharply on this time last year with its forward order book for 2008 at £1.05 billion compared with £1.3 billion 12 months ago, a fall of 19%.

It also said the number of people visiting its sites is down 13% on a year ago and cancellations are up 20%, although this was better than in December, as banks and building societies tighten lending conditions and would-be buyers refuse to commit.

Chairman John White complained of "a very challenging year" and was cautious about the spring selling season. "When confidence returns and sentiment improves we anticipate a return to a stronger market," he said.

"In the meantime we remain cautious. Understandably, potential purchasers are currently taking longer to make decisions about the timing of their house purchase. There remains an underlying demand and desire for new homes but we have been experiencing a period of a 'wait and see' approach."

Persimmon posted a 1% rise in profits to £585.1 million for 2007, its 12th successive year of profit growth thanks to strong emphasis-on its margins. The number of houses sold fell 5% to 15,905 but the average selling price was up from £188,129 to £189,558.

Persimmon today raised its dividend by 10% to 51.2p a share.

Dresdner Kleinwort said it expects more "grim" news from the sector in the coming days. Barratt Developments reports results tomorrow and Redrow delivers its figures on Thursday.

"The housebuilding recession began on 15 September, the day after Northern Rock imploded," Dresdner said in a note. Shares in the sector have halved since early 2007 as the housing boom came crashing to an end. Persimmon was up 10p to 7731/2p today having peaked at 1543p last year.

Research by NHBC (the National House-Building Council) recently found that the number of houses starting to be built fell 39% from 14,998 at the beginning of 2007 to 9135 at the start of this year.

Persimmon chief executive Mike Farley said conditions have improved since December after two Bank of England interest rate cuts.