How Home Builder D.R. Horton Beat the Housing Bust

Despite the gloom around housing, home builder
D.R. Horton
beat expectations handily on earnings and revenue this past week. The shares, up 3.2% on the week, have gained 37.6% this year, in line with the
iShares U.S. Home Construction
exchange-traded fund’s 33%. Other builders did even better.

That might seem surprising. September existing-home sales hit their lowest seasonally adjusted annual rate in nearly 13 years. In a
Fannie Mae
survey, 85% of consumers said it was a bad time to buy a home—and nearly seven in 10 said their incomes were about the same as in 2022. At a recent 7.79%, payments on a median home purchase would eat up over 40% of a buyer’s income, notes the ICE Mortgage Monitor, the worst affordability since 1984.

How did Horton do it? A lack of existing homes pushed buyers to new homes. More than half of Horton’s customers are first-time buyers who are more susceptible to pricing pressures than repeat buyers. Horton turned to mortgage-rate buy-downs, which shrink monthly payments. A National Association of Home Builders survey said that 29% of builders were using buy-downs to boost sales or cut cancellations. And Horton is introducing smaller, more-affordable floor plans.

Incentive costs are up. Despite that, Horton expects gross margins on home sales of 23.7% to 24.2% in the first quarter—slightly above expectations—and 86,000 to 89,000 home closings, from 82,917 in 2023.

Write to Shaina Mishkin at [email protected]

Last Week

Markets

After the best week for stocks in 2023, indexes edged higher.
Microsoft
set a record high on Tuesday, finishing the week up 54% for the year, with a $2.68 trillion market cap. South Korea banned short selling before next year’s elections. Oil prices fell as Israel tightened its grip on Gaza City. On the week, the
Dow Jones Industrial Average
rose 0.65%, the
S&P 500
index was up 1.31%, and the
Nasdaq Composite
advanced 2.37%.

Companies

The actors union reached a tentative deal to end its 118-day strike. Elon Musk’s xAI released a chatbot with attitude named Grok that uses real-time data from his social-media company X. The Consumer Financial Protection Bureau is planning oversight into tech companies like
Apple
and
Alphabet
that offer digital wallets.
Berkshire Hathaway
racked up a 41% gain in quarterly earnings, mostly from insurance gains. Its cash pile hit $176 billion.
Walt Disney
unexpectedly beat on earnings and announced $2 billion more in cost cuts. The
Industrial & Commercial Bank of China’s
U.S. arm was hit by a ransomware attack.

Deals

KKR
acquired
Telecom Italia’s
fixed-line business for $20 billion…WeWork, as expected, filed for bankruptcy on Monday. The company gained support from 90% of creditors to replace $3 billion in debt with equity. Bloomberg said SoftBank took an $11.5 billion hit on the equity…Reuters reported that Chinese authorities were pressing
Ping An Insurance
to bail out Country Garden.

Write to Robert Teitelman at [email protected]

Next Week

Tuesday 11/14

The Bureau of Labor Statistics releases the consumer price index for October. Economists forecast a 3.3% year-over-year increase, following a 3.7% rise in September. The core CPI, which excludes volatile food and energy prices, is expected to gain 4.1%, unchanged from September.

Retailers’ earnings take center stage as Wall Street debates whether the U.S. consumer can continue to defy the skeptics and power the economy after gross domestic product grew at a seasonally adjusted annual rate of 4.9% in the third quarter.
Home Depot
reports results on Tuesday. Target and
TJX
Cos. announce earnings on Wednesday, and
Ross Stores
and
Walmart
close out the week on Thursday.

Wednesday 11/15

President Joe Biden will meet with China’s President Xi Jinping during the Asia-Pacific Economic Cooperation summit in the San Francisco Bay Area. The two leaders are bidding to stabilize the relationship between the world’s two largest economies.

The Census Bureau reports retail sales data for October. Consensus estimate is for consumer spending to decline 0.4% month over month. Excluding autos, sales are expected to fall 0.2%. This compares with increases of 0.7% and 0.6%, respectively, in September.

Email: [email protected]

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