Lawler on Homebuilders: Net Orders Last Quarter Down From Year Ago

D.R. Horton, the nation’s largest home builder, reported that net home orders in the quarter ended September 30, 2013 totaled 5,160, down 2.2% from the comparable quarter of 2012. The company’s sales cancellation rate, expressed as a % of gross orders, was 31%, up from 27% a year ago. Home closings totaled 6,866 last quarter, up 23.2% from the comparable quarter of 2012, at an average sales price of $262,463, up 13.6% from a year ago. The company’s order backlog at the end of September was 8,205, up 13.3% from last September.

In its conference call, Horton officials attributed the increase in home prices both to increased pricing power and an increased “mix” of larger homes sold to trade-up buyers. Officials also said that the drop in sales orders reflected a “moderation” in demand that began in mid-May and continued through September, and attributed the drop in demand both to higher mortgage rates and higher home prices. The officials noted that the pace of orders had improved in October, and also said that home prices increases have “moderated.”

Officials also noted that its previous rapid increase in its land/lot inventory (see next page) meant that it had “sufficient inventories of homes and finished lots” to meet what it hoped to be improved demand over the next year, and that the company expected to reduce its land purchases next year.

Here are some summary stats for nine large, publicly-traded builders for the quarter ended September 30th.

	Net Orders			Settlements			Average Closing Price
Qtr. Ended:	9/30/13	9/30/12	% Chg	9/30/13	9/30/12	% Chg	9/30/13	9/30/12	% Chg
D.R. Horton	5,160	5,276	-2.2%	6,866	5,575	23.2%	$262,453	$231,085	13.6%
Pulte Group	3,781	4,544	-16.8%	4,817	4,418	9.0%	$310,000	$279,000	11.1%
NVR	2,381	2,558	-6.9%	3,342	2,656	25.8%	$349,200	$321,700	8.5%
The Ryland Group	1,592	1,507	5.6%	1,883	1,322	42.4%	$298,000	$264,000	12.9%
Beazer Homes	1,192	1,110	7.4%	1,657	1,608	3.0%	$263,200	$228,600	15.1%
Standard Pacific	1,110	989	12.2%	1,217	861	41.3%	$420,000	$369,000	13.8%
Meritage Homes	1,300	1,204	8.0%	1,418	1,197	18.5%	$341,000	$280,000	21.8%
MDC Holdings	924	1,008	-8.3%	1,257	1,039	21.0%	$345,000	$320,647	7.6%
M/I Homes	869	757	14.8%	937	746	25.6%	$284,000	$266,000	6.8%
Total	18,309	18,953	-3.4%	23,394	19,422	20.5%	$305,805	$271,672	12.6%

As the above table indicates, while overall settlements for their builders last quarter were up 20.6% from a year ago, and average sales prices were up 12.6% YOY, net sales orders were down 3.4% YOY – the first YOY drop for this group of builders since the first quarter of 2011.

These builder results indicate that the combination of higher mortgage rates and aggressive home price increases resulted in a significant slowdown in new home sales last quarter. While the relationship between large builder results and Census estimates for new home sales is far from perfect (partly reflecting market-share changes but also reflecting methodological and timing differences), these builder results suggest that Census estimates for new SF home sales for September (re-scheduled for release, along with estimates for October, on December 4th), could be down sharply from August.