After a bruising year in 2023, housebuilders have been hoping that 2024 will bring a return to brighter times. But it could be a while yet before the sector is firmly in recovery mode.

Market watchers had been expecting Persimmon, one of the country’s biggest builders, to have endured a difficult time in 2023, given the impact of surging interest rates on mortgage availability. That came to pass when the company reported its results for 2023 today, which revealed profits had dropped by more than 50% to £351.8 million.

But perhaps what the City did not expect was that Persimmon would be so cautious in its remarks for the current year. The company warned market conditions will “remain subdued” in 2024 despite recent signs that sentiment was improving and its own assertion that “significant pent-up demand for homes remains unchanged”, adding that affordability continues to be “constrained”, particularly among first-time buyers.

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As shares in the company fell sharply this morning, one analyst observed the lack of clarity as to when the Bank of England will begin to bring interest rates down may be affecting investor sentiment towards the industry, even though it is widely expected that the recent cycle of rate rises has peaked.

Russ Mould of stockbroker AJ Bell also observed there may be a feeling that, in the case of Persimmon, the company's share price may be viewed by some as too high, against the “benchmark provided by Barratt’s all-stock offer for Redrow” in early February.

With the UK in the grip of a housing shortage, it seems safe enough to suggest the prospects for the likes of Persimmon look good in the long term. In the nearer term, it looks like they will have to endure a bit more discomfort, at least until interest rates come down and mortgages become a lot more affordable.

“Higher interest rates remain a headwind and market conditions are expected to stay subdued in the year ahead – there are also significant changes going on in the wider sector, such as the merger of Barratt and Redrow,” noted John Moore, senior investment manager at RBC Brewin Dolphin.

“While Persimmon’s bottom line has suffered against this backdrop, the business remains highly cash generative and is well placed longer term – it has the scale others in the sector are aiming for and a good record of being able to adapt to different stages of the economic cycle.

“The structural housing shortage in the UK isn’t going anywhere soon and, so long as that is the case, Persimmon should be one of the main beneficiaries.”