America’s largest homebuilder offered the latest examples of how quickly buyers are fleeing the housing market.
Buyers canceled nearly a third of transactions during DR Horton Inc.’s (DHI) fourth fiscal quarter, up from 19% a year ago, the Texas-based company said Wednesday. New orders fell 15% to 13,582 homes from a year earlier, down 10% in value.
The company is responding by moving away from land deals that don’t meet certain metrics as the market shifts, writing off $34 million in deals-related deposits and expenses, and offering more incentives for sellers to close. transactions.
“As we assess projects at various decision points, we will be working with various land sellers and developers and where we cannot reach agreement on our housing, we will not move forward with a bad deal,” Michael Murray, executive vice president and co-COO of DR Horton Inc., said during the earnings call Wednesday morning.
The historic increase in mortgage rates this year, triggered by the Federal Reserve’s aggressive campaign to control inflation, has depressed housing demand and shaken builder confidence.
The average rate for a 30-year fixed-rate mortgage is around 7%, according to Freddie Mac. A year ago, it was more than half, at 3%. High borrowing costs have dented demand for mortgages to a 22-year low, according to the Mortgage Bankers Association, and prompted brokerage firms, including Redfin on Wednesday, to cut some of their workforce.
“Rapidly rising mortgage rates, coupled with high inflation and general economic uncertainty, have forced many buyers to pause in their decision to buy a home or choose not to go ahead with it. their home purchase,” Chairman and CEO David Auld said on a conference call. to discuss earnings.
DR Horton’s quarterly results – which missed earnings and revenue – also echoed what Pultegroup (PHM) previously reported in its latest earnings release. Order cancellations rose 24% in the period, from 15% in the second quarter and 10% a year ago, the Atlanta-based automaker reported in October, while purchase contracts fell by 28% compared to a year ago.
As a result, the homebuilder is trying to pivot by increasing incentives and shifting from mortgage rate buybacks to price cuts. A similar move was also shared by DR Horton, which “offers mortgage interest rate locks and buyouts and other sales incentives to address affordability concerns and to drive traffic to our communities,” Bill W. Wheat, Executive Vice President and Chief Financial Officer. , said.
Wall Street analysts say it will come down to “stabilizing” rates for homebuilders; otherwise it will be a long way to go.
“What will boil down to is that we need stabilization [of] rates – full stop – that’s what we need,” UBS analyst John Lovallo told Yahoo Finance. “If rates were to continue to rise from here, it’s going to be very difficult. If we get some stabilization, or God forbid, a slight drop in rates, that could trigger some pretty big demand. »
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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