Wednesday, April 22, 2015

Lawler: D.R. Horton: Net Home Orders Up, Prices “Flattish;” Says If Prices are Low Enough, There is “Demand” from First-Time Buyers

by Bill McBride on 4/22/2015 03:56:00 PM

From housing economist Tom Lawler:

D.R. Horton, the nation’s largest home builder, reported that net home orders in the quarter ended March 31, 2015 totaled 11,135, up 29.9% from the comparable quarter of 2015. The average net order price last quarter was $284,400, up 2.0% from a year ago. Home deliveries totaled 8,243, up 33.1% from the comparable quarter of 2014, at an average sales price of $281,300, up 3.7% from a year ago. The company’s order backlog at the end of March was 12,177, up 21.1% from last March, at an average order price of $293,500, up 4.6% from last March. Horton’s home sales gross margin was 19.7% last quarter, down from 22.5% a year earlier but not too far from the company’s previous “guidance.”

Here in a table showing the share of Horton’s net orders and home closings for its three “brands:” Horton (traditional), Emerald (upscale), and Express (targeted at entry level).

Horton Share of Home Orders/Closings by "Brand"
  Net OrdersHomes ClosedAverage Closing Price
Qtr. Ended3/31/20153/31/20143/31/20153/31/20143/31/20153/31/2014
Horton79%92%85%95%$288,800 $272,000
Express18%6%13%4%$179,100 $157,300
Emerald3%2%2%1%$561,000 $524,300

On “Express” Homes and first-time buyers, a company official said that it in the 44 markets (in 13 states) that Horton has Express communities (most being in Texas, the Carolinas, and Florida), there was plenty of demand from first-time buyers, mainly because of the price/”value proposition.” Very few large builders have been building homes sized and priced for entry-level buyers, and it hasn’t been clear if the reason was weak demand or many builders’ inability to produce affordable homes at margins deemed high enough for the builder.

Officials also said that they have yet to see any signs of weakness in its Texas markets, including Houston.

There was a little confusion on the reason for the sharp slowdown in the rate of increase in the company’s average sales price, which has been virtually unchanged over the last few quarters. In one part of the conference call there was a suggestion that the increase in the Express share of overall orders and sales was behind this trend, which at first glance made sense (see above). In another part of the call, however, a company official said that compared to a year ago the average size (in square footage) of homes sold last quarter was up 3%, suggesting that “most” of the 3.7% YOY increase in the average price of homes sold was related to selling larger homes.