Thursday, October 24, 2013

Lawler on Homebuilders: Rising mortgage rates, Higher home prices, Resulted in a material slowdown in net home orders last quarter

by Bill McBride on 10/24/2013 01:59:00 PM

Some comments from housing economist Tom Lawler:

• PulteGroup, the nation’s second largest home builder, reported that net home orders in the quarter ended September 30, 2013 totaled 3,781, down 16.8% from the comparable quarter of 2012. The company’s community count at the end of last quarter was down 15% from a year ago. Home closings totaled 4,817 last quarter, up 9.0% from the comparable quarter of 2012, at an average sales price of $310,000, up 11.1% from a year ago. The company’s order backlog as of September 30, 2013 was 7,522, down 2.1% from last September.

In its press release, the company noted that “consumers have recently slowed home purchases due to higher home prices, a rapid rise in mortgage rates, and political and economic uncertainty,” though the company said it expects the slowdown will be “short lived.”

On the home price front, the company said that “(t)he higher average selling price realized in the quarter reflects price increases implemented by the Company and a continued shift in the mix of homes closed toward more move-up and active adult homes which typically carry higher selling prices.”

• M/I Homes, the nation’s 16th largest home builder, reported that net home orders in the quarter ended September 30, 2013 totaled 869, up 14.8% from the comparable quarter of 2012. The company’s average community county last quarter was up 14.3% from a year ago. Home deliveries totaled 937 last quarter, up 25.6% from the comparable quarter of 2012, at an average sales price of $284,000, up 6.8% from a year ago. The company’s order backlog as of September 30, 2013 was 1,607, up 36.3% from last September.

At the end of September the company owned or controlled 18,133 lots, up 61.9% from last September.

• NVR: Net Home Orders Fell Last Quarter; WAY Below “Consensus”. NVR, Inc, the nation’s fourth largest home builder, reported that net home orders in the quarter ended September 30, 2013 totaled 2,381, down 6.9% from the comparable quarter of 2012. The company’s sales cancellation rate, expressed as a % of gross orders, was 19%, up from 17% a year ago. Home settlements totaled 3,342 last quarter, up 25,8% from the comparable quarter of 2012, at an average sales price of $349,200, up 8.5% from a year ago. The company’s order backlog at the end of September was 5,656, up 14.3% from last September. The decline in net orders last quarter occurred despite a YOY increase in the company’s average community count of 10.0%. NVR is heavily concentrated in the Mid-Atlantic region, where net orders last quarter were down 9.7% from a year ago.

• Meritage Homes reported that net home orders in the quarter ended September 30, 2013 totaled 1,300, up 8.0% from the comparable quarter of 2012. The company’s sales cancellation rate, expressed as a % of gross orders, was 14% last quarter, up from 13% a year ago. Home deliveries last quarter totaled 1,418, up 18.5% from the comparable quarter of 2012, at an average sales price of $341,000, up 21.8% from a year ago. The company’s order backlog on September 30, 2013 was 2,190, up 35.4% from last September. The company noted that average orders per community were down 4% from a year ago. In its press release, a company official attributed last quarter’s slowdown in net home orders to the earlier jump in mortgage rates and to the company’s aggressive increase in home prices.

The company noted that net home orders in the “West Region” (Arizona, California, and Colorado) were down 16% YOY, and net orders per community were down 19%, in part reflecting the company’s aggressive hiking of home prices in the West.

The company’s revenues, gross margins, and overall income exceeded “consensus,” but net orders were well below consensus.

As with many other large builders, Meritage began to add aggressively to the number of lots it owns or controls over the last year, and as of the end of September it owned or controlled 25,046 lots, up about 41% from last September.

Here is a summary of selected results reported by publicly-traded builders for last quarter and compared to the same quarter of 2012.

 Net OrdersSettlementsAverage Closing Price
Qtr. Ended:9/30/139/30/12% Chg9/30/139/30/12% Chg9/30/139/30/12% Chg
Pulte Group3,7814,544-16.8%4,8174,4189.0%$310,000$279,00011.1%
NVR2,3812,558-6.9%3,3422,65625.8%$349,200$321,7008.5%
Meritage Homes1,3001,2048.0%1,4181,19718.5%$341,000$280,00021.8%
M/I Homes86975714.8%93774625.6%$284,000$266,0006.8%
Total8,3319,063-8.1%10,5149,01716.6%$324,324$290,63511.6%

There appears to be little doubt that rising mortgage rates, combined with higher home prices, resulted in a material slowdown in net home orders last quarter. Mortgage rates, of course, have fallen considerably since early September, though they remain well above levels since during the first five months of the year.

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