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Homebuilder D.R. Horton surges as 'encouraging' housing market boosts results

D.R. Horton (DHI) stock rallied Thursday after the homebuilder reported quarterly results that topped expectations as tight existing home inventory boosted activity for new builds during the spring selling season.

“The spring selling season is off to an encouraging start with our net sales orders increasing 73% sequentially from the first quarter,” D.R. Horton CEO David Auld wrote in the press release.

The homebuilder posted quarter results for its fiscal second quarter that beat Wall Street estimates, with earnings per share coming at $2.73, beating the $1.93 expected by analysts according to data compiled by Bloomberg. Revenue for the quarter came in at $7.97 billion for the quarter, more than the $6.59 billion expected by analysts.

Shares of the company gained as much as 7% following these results.

"Despite higher mortgage rates and inflationary pressures, demand improved during the quarter due to normal seasonal factors, coupled with our use of incentives and pricing adjustments to adapt to changing market conditions," Auld said.

"Although higher interest rates and economic uncertainty 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."

D.R. Horton said its purchase contracts slipped 5% to 23,142 homes, beating estimates for 19,618 homes. Meanwhile, contracts canceled for the three months ending March reached 18%, up from 16% during the same period last year.

Thursday's rally in D.R. Horton stocks comes amid strong year-to-date gains for homebuilder stocks as the the SPDR S&P Homebuilders ETF (XHB) up 16% so far this year and trading just below its 52-week high reached back in early February.

Data from Freddie Mac out Thursday showed the average rate on the 30-year fixed mortgage climbed 6.39% from 6.27% the week before, reversing recent declines.

Homebuilders have been able to manage mortgage rate volatility, however, offering buyers lower interest rates. For example, D.R. Horton offers fixed-rate mortgages at around 5% for buyers purchasing new construction through the builder's finance arm.

New data on sales of existing homes out Thursday from the National Association of Realtors showed rate volatility and a lack of supply is still pressuring the housing market broadly.

"Home sales are trying to recover and are highly sensitive to changes in mortgage rates," NAR Chief Economist Lawrence Yun said in their press release. "Yet, at the same time, multiple offers on starter homes are quite common, implying more supply is needed to fully satisfy demand. It’s a unique housing market."

With the spring selling season in full swing, many potential homebuyers that were on the sidelines have been enticed to come back to the market by deals provided by homebuilders. D.R. Horton continues to offer incentives to aid affordability among their clients.

"We expect to continue offering a similar level of incentives throughout 2023, and we are seeing indications that our average sales price and incentive levels are beginning to stabilize," Paul Romanowski, co-COO at D.R. Horton, said on the company's earnings call Thursday.

The company's average sales price for a home was $372,900, down 7% from the same quarter last year.

A house under construction is seen at Hawthorne Estates by D. R. Horton in Medford, New Jersey, U.S., May 23, 2022. REUTERS/Andrew Kelly
A house under construction is seen at Hawthorne Estates by D. R. Horton in Medford, New Jersey, U.S., May 23, 2022. REUTERS/Andrew Kelly (Andrew Kelly / reuters)

D.R. Horton ended the quarter with a backlog of 19,237 homes valued at $7.4 billion, down 43% from the previous year and a larger backlog than the 18,800 homes expected by analysts.

Looking ahead, the homebuilder is forecasting full-year revenue of $31.5 billion-$33.0 billion and expects to home 77,000-80,000 homes.

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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