The nation's largest homebuilder is raising its sales expectations this year after a spring selling season brought year-over-year revenue gains even as buyers grapple with inflation and elevated mortgage interest rates.
D.R. Horton anticipates selling as many as 91,000 single-family homes this year, upping its guidance from the prior quarter by an additional 1,000 homes. In turn, the builder, with a headquarters in Arlington, Texas, expects its revenue to range from between $36.7 billion and $37.7 billion in fiscal 2024 ending Sept. 30, boosting its expectations by roughly half-a-billion dollars.
To keep pace, the builder plans to continue offering incentives, such as mortgage interest rate buy downs, to lure potential buyers to embark on homeownership. The plan comes at a time when the average long-term mortgage rate surpassed 7% last week, the highest it's been in nearly five months, following a record pace of interest rate increases in the past year.
However, those elevated mortgage interest rates don't seem to be stopping buyers from closing on D.R. Horton's single-family houses.
"Although inflation and mortgage interest rates remain elevated, our net sales orders increased 46% for the first quarter and 14% from the prior year quarter as the supply of both new and existing homes at affordable price points is still limited and the demographics supporting housing demand remain favorable," said D.R. Horton's President and CEO Paul Romanowski during an earnings call Thursday morning.
"Homebuyer demand during the spring selling season thus far has been good despite continued affordability challenges with 45,000 homes in inventory, we are well positioned to continue consolidating market share," he added.
D.R. Horton seems to be building the kind of house that's gained traction with buyers in the market. The company builds smaller houses at lower price points to meet demand for more affordable housing, executives said in the earnings call. To get the prices low, the builder has been banking land with 617,000 home lots in its pipeline, with 23% of those being owned by D.R. Horton and 77% of those lots controlled through purchase contracts.
The bulk of D.R. Horton's single-family houses sell at a price point under $400,000 at a time when the average cost of a U.S. house is more than $500,000, the Federal Reserve Bank of St. Louis has said. That price point for a new house, even if it's smaller, is appealing to buyers.
Executives also said material costs, such as lumber, have also become more tempered. From start to finish, it takes D.R. Horton about four months to build a house, a period that has decreased in the past year and helped keep costs low, executives added. The uncertainty when it comes to costs for the remainder of the year centers on mortgage interest rates and the market.
"Our costs outside of incentives have generally flattened out on the stick and brick side," said Jessica Hansen, D.R. Horton's senior vice president of investor relations, during the earnings call. In the next two quarters, "it is going to be incentives [that are] the wild card, and it's going to be dependent solely on market conditions."
D.R. Horton's sales also haven't been impacted by the rise of insurance costs in Florida, with the bulk of its single-family houses being built away from the impacted coastal markets, executives said.
The builder sold 22,548 single-family homes, an increase of 15%, in the second quarter that ended March 31 compared to the same quarter the prior year from 19,664 homes. In turn, revenue increased 13% in the second quarter to $8.5 billion compared with $7.5 billion in the same period last year.
Based on D.R. Horton's earnings results, analysts with Keefe, Bruyette & Woods said it was a strong quarter led by orders outperforming with strong margins and a low cancellation rate of 15%.
Rental Division
Due to murky capital markets and interest rate volatility, D.R. Horton decided not to offer any spending expectations for its growing rental division, Romanowski told investors.
In the second quarter, D.R. Horton sold 1,109 single-family rental homes and 424 apartments, with revenue totaling $371.3 million. As of the quarter that ended March 31, the builder had a total rental property inventory of $3.1 billion in its portfolio, including $1.3 billion of single-family rentals and $1.8 billion of apartments.
D.R. Horton did not immediately respond Thursday to a request from CoStar News seeking additional details on the property sales during the quarter.
The company repurchased 2.7 million shares of its stock during the second quarter for $402.2 million. In the past six months, the builder has repurchased 6.1 million shares in deals totaling $800.5 million.