D.R. Horton, the largest homebuilder by volume in the U.S., saw sales orders plunge in the last three months of 2022 because higher interest rates and inflation continued to create affordability challenges for potential buyers.
Sales orders for the Texas-based builder nationally were down 38% year over year in its first fiscal quarter that ended Dec. 31, compared to a 15% decline in the previous quarter. That included 13,382 homes, compared to 21,522 a year ago.
The company earned $958.7 million, a 16% decrease from a year ago when it made $1.1 billion. Like other builders, the company has seen a moderation in demand due to increases in mortgage rates and overall economic uncertainty.
“While these pressures may persist for some time, the supply of both new and existing homes at affordable price points remains limited, and demographics supporting housing demand remain favorable,” chairman Donald Horton said in a statement. “We are well-positioned to navigate changing market conditions with our experienced operators, diverse product offerings and flexible lot supply and are focused on turning our inventory to maximize returns and capital efficiency in each of our communities.”
CEO David Auld told investors in its quarterly earnings call Tuesday morning that despite the market challenges, the company is optimistic about the spring selling season in the months ahead.
“I do think the credit markets have stabilized somewhat, consumer confidence improved a little bit, job growth continues to be very good,” Auld said. “Overall, if you look at pent-up demand and just a generalized economy becoming less bad; very good signs for housing.”
Jessica Hansen, vice president of investor relations and communications for D.R. Horton, told investors that the company is already seeing some signs in the first weeks of 2023 that normal seasonality could return this quarter, which would mean a 50% increase in sales orders from last quarter.
Because of the rapid rise in rates last year, buyers canceled sales orders because they no longer qualified for a mortgage or reconsidered due to affordability. D.R. Horton’s sales order cancellation rate was 27% versus 15% a year ago and was down slightly from the previous quarter’s 32%.
The builder is using incentives including discounting homes and buying down mortgage rates to help boost sales. D.R. Horton had 43,200 homes in inventory nationally at the end of the year, of which 27,800 were unsold. Of those unsold homes, 7,100 had been completed.
“This is the exact right time of the year to have that inventory, especially with a backdrop of very low existing-home sale inventory available in the marketplace,” said chief operating officer Mike Murray.
D.R. Horton has operations in 109 markets across 33 states. The company closed on 17,340 home sales last quarter, a 6% decrease from the same quarter in 2021.
In North Texas, the last quarter of 2022 marked the largest year-over-year decline in home starts since the Great Recession, according to Dallas housing analyst Residential Strategies, which reported a 38% fall in construction as builders focused on completing and selling homes already underway.
D.R. Horton also constructs rental houses and sells them to investors and operators. The company announced a $1 billion investment in the business in late 2021. Builders have been investing in rentals as affordability and inventory issues have affected overall new home sales.
The builder’s rental business generated $110.3 million in pre-tax profit last quarter, up 57% from $70.1 million a year before. The company sold 694 single-family rental homes and 300 multifamily rental units.
