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Wednesday, April 23, 2014

Lawler on Meritage Homes: Net Home Orders Down despite Higher Community Count, “Less Pricing Power” Suggests Relatively Flat Home Prices for Rest of Year

by Calculated Risk on 4/23/2014 01:36:00 PM

From housing economist Tom Lawler:

Meritage Homes, the ninth largest US home builder, reported that net home orders in the quarter ended March 31, 2014 totaled 1,525, down 1.4% from the comparable quarter of 2013. Orders were down despite a 16% YOY increase in the company’s average community count. The company’s sales cancellation rate, expressed as a % of gross orders, was 13% last quarter, up from 11% a year ago. Home closings totaled 1,109 last quarter, up 5.4% from the comparable quarter of 2013, at an average sales price of $366,000, up 16.4% from a year ago. The company’s order backlog at the end of March was 2,269, up 15.4% from last March, at an average order price of $368,400, up 8.3% from last March.

Meritage said that it owned or controlled 25,807 lots at the end of March, up 22.7% from last March and up about 50% from two years earlier.

Here are some excerpts from the company’s press release.

"The high-pitched pace of sales in our western region has slowed in recent quarters after experiencing very robust demand and significant increases in home prices since 2012," he explained. "Demand in Arizona has softened over the last several months and home prices there have moderated. On the other hand, demand in California and Colorado remains strong, though not as intense as a year ago. We continue to focus on maximizing profitability at a more normalized sales pace."

He concluded, "We remain committed to our forecast of approximately 210-220 active communities by year-end 2014 (versus 188 at year-end 2013). Based on the trends in sales pace and prices that we've experienced so far this year, we are projecting that our 2014 home closing gross margin may be relatively flat compared to 2013, due to less pricing power and higher land costs. With that in mind, we believe we will still achieve significant earnings growth in 2014, and that future years' earnings growth will be driven mainly by community count growth and operating leverage as we expand and grow our top line while managing our costs."
Meritage Home PricesClick on graph for larger image in graph gallery.

CR Note: This graph from Tom Lawler shows Meritage's net home order sales price.    Part of the reason for the slight price decline is because of fewer sales in the western region (more expensive). 

Lawler: In the quarter ended March 31, 2013, Meritage’s net orders per active community were up almost 27% from the comparable quarter of 2012. In the quarter ended March 31, 2014, net orders per active community were down about 15% from the comparable quarter of 2013, with the biggest decline coming in the West (down 32.8%).