Tuesday, November 11, 2014

Lawler on D.R. Horton: Net Orders Jump as Increased Incentives Continued; Expects Big Increase in Unit Sales, Flat Home Prices Next Year

by Bill McBride on 11/11/2014 01:41:00 PM

From housing economist Tom Lawler: D.R. Horton: Net Orders Jump as Increased Incentives Continued; Expects Big Increase in Unit Sales, Flat Home Prices Next Year

D.R. Horton reported that net home orders in the quarter ended September 30, 2014 totaled 7,135, up 38.3% from the comparable quarter of 2013. Net orders per community were up about 25% from a year ago. ... Home deliveries totaled 8,612 last quarter, up 25.4% from the comparable quarter of 2013, at an average sales price of $279,099, up 6.3% from a year ago. The company’s order backlog at the end of September was 9,888, up 20.5% from last September, at an average order price of $289,118, up 7.3% from a year ago.

On the net order front, orders were up the most in the company’s “East” division (YOY up 93%), which included orders from the housing inventory acquired from Crown Communities and where there are a “disproportionate” number of Express home communities (the relatively new product line for entry-level buyers, as most Express communities are in the Carolinas and Texas).

With respect to the YOY increase in the average price of homes closed last quarter (6.3%), company officials said that the average size of home closed last quarter was up 4% from a year earlier, while the average sales price per square foot was up just a little.

Company officials said that incentives last quarter were little changed from the previous quarter, implying that they were up significantly from a year ago. In order to increase the pace of absorptions, Horton increased significantly its sales incentive starting this spring, to what officials called “more normal long-term levels” from the “much lower than normal” levels of the past few years.

Horton said that at the end of September it owned or controlled 183,500 lots, up 1.4% from a year earlier but up 62.8% from September 2011. From the latter part of 2011 through the first half of 2013 Horton acquired a huge land/lot position, which “positioned” the company well for a housing recovery but which also has “pushed” the company to drive more home sales with more aggressive pricing than most of its competitors.

While a company official characterized overall housing demand as “relatively stable,” the company’s “broad geographic footprint and diversified product offerings across our three brands,” combined with its “sizable inventories of homes and finished lots” and more aggressive pricing, enabled Horton to achieve the highest market share in the company’s history.

For the fiscal year ending September 30, 2014 Horton home closings totaled 28,670 at an average sales price of about $272,200. The company said that in FY 2015 it “expects” home closings to be 34,500 to 37,500 (an increase of 20-30%), at an average sales price that is expected to be “little changed” from FY 2014.

CR Note: Below is a table of annual fiscal year sales (via Lawler).  The increase in 2010 was related to the ill-conceived housing tax credit.  Note that D.R. Horton increased sales 19% this fiscal year, even though total new home sales were only up a little.

Two key points: Incentives are up significantly (back to "normal" according to Horton) and prices are mostly flat.

Horton: Homes Closed during
Fiscal Year Ending September 30
Fiscal
Year
SalesYoY %
Change
200121,371---
200229,76139.3%
200335,93420.7%
200443,56721.2%
200551,17217.5%
200653,0993.8%
200741,370-22.1%
200826,396-36.2%
200916,703-36.7%
201020,87525.0%
201116,695-20.0%
201218,89013.1%
201324,15527.9%
201428,67018.7%