Homebuilders Fall as Pulte, Horton Orders Miss Estimates
PulteGroup Inc. (PHM) and D.R. Horton Inc. (DHI), the largest U.S. homebuilders, tumbled after reporting lower-than-expected orders, adding to concerns that higher mortgage rates will hamper the nation’s housing recovery.
PulteGroup, based in Bloomfield Hills, Michigan, said second-quarter orders fell 12 percent on a lower community count. D.R. Horton said orders increased 12 percent, which was below analysts’ forecast for 28 percent growth, according to Adam Rudiger, an analyst at Wells Fargo & Co. in Boston.
Rising mortgage rates contributed to increased cancellations and a dropoff in traffic in June, according to Fort Worth, Texas-based D.R. Horton. Borrowing costs have surged in the past two months on expectations that the Federal Reserve will scale back bond purchases. The 30-year average fixed mortgage rate was 4.31 percent in the week ended today, up from a near-record low of 3.35 percent in May, Freddie Mac said.
“We got our first indication today that consumers are feeling the effect of rising rates on their purchasing power,” Peter Martin, a San Francisco-based analyst with JMP Securities LLC, said in a telephone interview.
D.R. Horton fell 8.6 percent to $19.38, its lowest close since Dec. 28. PulteGroup sank 10 percent to $16.55, the biggest drop in 13 months and lowest close since Dec. 11. The 11-company Standard & Poor’s Supercomposite Homebuilding Index slid 4.8 percent. It has tumbled 23 percent from an almost six-year high on May 14.
There’s “no question” rising rates affected sales, D.R. Horton Chief Executive Officer Donald Tomnitz said today.
“A lot of buyers were counting on trying to pick the low in the pricing and the low in the interest rates,” Tomnitz said on a conference call with analysts. “They are a little bit shocked and disturbed by the fact that rates have moved up from where they were.”
PulteGroup’s second-quarter orders fell to 4,885 homes from 5,578, with 16 percent fewer communities. Analysts estimated orders of 5,801 homes, Jack Micenko, an analyst at Susquehanna International Group, wrote in a note to clients.
“We had recognized that there was a risk that order growth could go negative in the quarter, but a 12 percent drop was a bit more than we thought could happen,” Megan McGrath, an analyst at MKM Partners LLC in Stamford, Connecticut, said in an e-mail.
Richard Dugas, PulteGroup’s CEO, said on a conference call today that mortgage rates haven’t hurt demand and buyer traffic remained consistent throughout the quarter and into July.
“We’re in the camp that if higher rates reflect improving economic conditions we’d expect a housing recovery to remain on track,” Dugas said. “As an industry, we can sell more houses if more people have jobs, even with modestly higher rates.”
The pullback by buyers amid sharply higher interest rates, which are still low by historical standards, came as an overreaction to a speech by Federal Reserve Chairman Ben S. Bernanke, according to Tomnitz.
“It seems like one speech had a major impact on the industry and our sales, which was a really ridiculous reaction by the marketplace,” he said during the conference call.
Tomnitz expects buyers to return as rates moderate and said the company is in a “great position” to raise prices.
Both builders have been increasing prices in response to competition among buyers for a tight inventories of new and existing homes. Sales of new U.S. homes jumped 8.3 percent in June to the highest level since May 2008, the Commerce Department said yesterday.
PulteGroup sold 4,152 homes for an average price of $294,000, a 9 percent jump from a year earlier. D.R. Horton’s average price climbed to $268,000 from $225,000 a year earlier.
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