The Persimmon (LSE: PSN) share price is in a strong uptrend at the moment. Over the last 12 months, it has risen about 70%.
Looking ahead, I wouldn’t be surprised to see shares in the British housebuilder continue to rise. Here are three reasons why.
Interest rates are coming down
The last few years have been challenging for the UK’s housebuilders. With interest rates at high levels, demand for new homes has been subdued.
The landscape is now changing, however.
Already, the Bank of England (BoE) has cut interest rates once. And looking ahead, economists expect several more cuts over the next 18 months.
Lower interest rates should provide a much more supportive backdrop for Persimmon and the other housebuilders. That’s because mortgages will start to become affordable.
It’s worth noting that in its recent half-year results, the company said that it had seen a “strong pick-up in enquiries” recently. Meanwhile, property search company Rightmove has said that British estate agents have seen a pick-up in demand from buyers since the BoE’s decision to begin cutting interest rates.
The new government wants homes built
Another positive development for Persimmon is the recent change of government.
Housing was a key part of the Labour Party’s election manifesto. It has said that it would like 1.5m new homes to be built across Britain over the next five years.
This should also provide a supportive backdrop. “If election pledges turn into policy, today is more than just a new day in housebuilding, it is the dawning of a new age,” said RBC Capital Markets analyst Anthony Codling after Labour won the election.
The trend is up
Finally, the stock is trending up as I noted earlier. Currently it’s above both its 50-day and 200-day moving averages meaning it’s technically in a short-term and long-term uptrend.
The thing about share price trends is that they can be quite sticky. Often, they stay in place for a while.
One thing that could help to support the trend here is the fact that City analysts are increasing their earnings per share (EPS) forecasts for the company.
Over the last month, the consensus EPS forecast for 2024 has risen by 1.5p to 81.8p. This kind of analyst activity is generally positive for a company’s share price.
Another factor that could help keep the trend in place is Persimmon’s dividend (the yield here is about 3.6%). As interest rates come down and savings accounts offer less attractive rates, dividend stocks could get more attention.
Risks
Of course, there are no guarantees that the shares will continue to rise from here.
If inflation picks up again and UK interest rates remain high, we could see the uptrend come to an end. Another risk is general economic weakness. This could lead to lower demand for new homes.
If we assume that the UK economy remains in a robust shape and rates come down, however, I think the shares may continue to rise.
This post was originally published on Motley Fool
