By Ananta Agarwal
(Reuters) -D.R. Horton Inc missed estimates for first-quarter profit on Tuesday, as it offered incentives and cut base price on new homes to whip up demand in a market that is struggling to cope with higher mortgage rates, sending its shares down 7%.
Among a string of incentives offered by U.S. homebuilders, mortgage rate buydowns – or a permanent or temporary interest rate reduction on a home loan – have become popular among customers looking to buy new homes.
However, the buydowns are adding pressure to the industry’s gross margins and offsetting gains from higher home sales, including for D.R. Horton.
The company expects second-quarter gross margins to remain flat in the range of 22.6-23.1%, despite easing mortgage rates, as near-term incentive levels remain elevated due to “continued affordability challenges,” the company said on a post-earnings call with analysts.
The Arlington, Texas-based homebuilder reported a gross home sales margin of 22.9% in the first quarter, which came in below its outlook of 23.7% to 24.2%.
The results also weighed on shares of other homebuilders. Lennar and PulteGroup fell about 2% each.
Net income attributable to the company for the quarter ended December was $2.82 per share, compared with analysts’ estimates of $2.88 per share, according to LSEG data.
However, the company raised its forecast for full-year home sales, as it expects demand for new homes to rise despite high mortgage rates.
The supply of existing homes in the United States remains tight as a majority of owners are locked into a 30-year fixed mortgage rate below 5%, compared with current rates of about 6.6%, giving most buyers little option other than purchasing new homes at a higher price.
The country’s largest homebuilder by volume now expects full-year home sales to be in the range of 87,000 to 90,000 homes, compared with a prior expectation of 86,000 to 89,000 homes sold.
D.R. Horton reported first-quarter revenue of $7.72 billion, above analysts’ estimates of $7.59 billion, according to LSEG data.
(Reporting by Ananta Agarwal and Rupali Chaudhary in Bengaluru; Editing by Shweta Agarwal and Anil D’Silva)