Persimmon share price is at risk after Barratt warning

UK housebuilder stocks were the top underperformers on Thursday. Barratt Developments shares dropped by over 5%, making it the worst-performing company in the FTSE 100 index. Other top laggards in the index were Taylor Wimpey, Berkeley Group, and Persimmon (LON: PSN).

Housing concerns remain

The housing sector in the UK is doing badly as odds of more interest rates rise, pushing mortgage rates to the highest level in more than 16 years. The situation worsened this week when the UK published encouraging wage growth numbers.

It then escalated when the Bank of England (BoE) released its financial stability report. In that report, the bank warned that mortgage costs for over 1 million customers could jump to about 500 pounds by 2026.

Therefore, the UK is at the intersection of a cost of living crisis and rising mortgage rates, which is affecting home sales. A report by Halifax noted that the house price index dropped sharply in June.

Housebuilders have started feeling the heat of this situation. In a statement, Barratt Development, the biggest player in the country, warned that demand for new homes was drying up. Demand dropped by a third in the year to June 30th. It attributed most of these declines to the dwindling demand among new home buyers.

Therefore, Persimmon share price dropped because of the implications of Barrratt’s warning. While Persimmon’s results will come out on August 10th, investors believe that the company is also facing similar challenges. 

In April, the company offered an encouraging outlook, with the CEO hinting that full-year volumes will be towards the upper side of the 8,000 and 9,000 range. The company was also encouraged about the steady house prices. Therefore, since mortgage rates have skyrocketed, there is a likelihood that the company will continue to downgrade its forecast.

Persimmon share price forecast

PSN chart by TradingView

Persimmon stock price has been in a strong bearish trend in the past few months. This decline saw it drop below the important support level at 1,062p on June 23rd. The stock has remained below the 50-day and 25-day exponential moving averages (EMA). This is a sign that bears are in control.

Most importantly, the shares have formed a break and retest pattern by moving back to 1,062p. In price action analysis, this price action is usually a sign of a bearish continuation. Therefore, there is a likelihood that the shares will remain under pressure for a while, with the next level to watch being at 900p.