DR Horton Inc – ReportWire

Sales of newly built homes tank in April, as prices and interest rates rise

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A pile of lumber at a home under construction at the Cold Spring Barbera Homes subdivision in Loudonville, New York, US, on Wednesday Nov. 8, 2023.

Angus Mordant | Bloomberg | Getty Images

Sales of newly built homes dropped 4.7% in April compared with March, and fell a larger 7.7% from the prior year, the U.S. Census said Thursday.

March sales were also revised significantly lower.

Higher mortgage rates are clearly hampering sales. The monthly reading is based on signed contracts, so it reflects people shopping during the month and inking deals based on current rates.

The average rate on the 30-year fixed mortgage was in the high 6% range at the end of March, but then shot up to 7.5% during April, cutting into affordability.

Adding to that, the median price of a new home sold in April was $433,500, 4% higher than it was in April 2023. Some of that is due to the mix of homes selling, which is mostly on the higher end of the market. Those buyers are not as influenced by mortgage rates, as they often use all cash.

Builders say they cannot lower prices due to high costs for land, labor and materials. The big production builders have been buying down mortgage rates to help boost sales, but they are able to do that because of their size. D.R. Horton and Toll Brothers reported strong earnings in their latest quarters, beating expectations and citing growing demand due to low supply in the resale market.

“For all the happy talk from the big builders (who are taking market share), the entire new build industry is selling new homes at a pace below the 5 yr average,” noted Peter Boockvar, chief investment officer at Bleakley Financial Group and a CNBC contributor.

In the first quarter of 2024, 38% of a median household income nationally was needed to make the mortgage payment on a median-priced new single-family home, according to a new index launched Thursday by the National Association of Home Builders and Wells Fargo. Low-income families, which it defines as those earning just 50% of the area’s median income, would have to spend 77% of their earnings to pay for the same new home.

Prices continue to rise for both new and existing homes due to a lack of supply. There is very little available for sale on the lower end of the resale market. While the number of newly built homes continues to rise, up 12% year over year, new homes come at a price premium and are out of range for lower-income buyers.

“With a nationwide shortage of roughly 1.5 million homes, the lack of housing units is the primary cause of growing housing affordability challenges,” said Robert Dietz, NAHB’s chief economist. “Policymakers at all levels of government need to enact policy changes that will allow builders to construct more homes, such as speeding up permit approval times, providing resources for skilled labor training and fixing building material supply chains.”

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May 23, 2024

CNBC Daily Open: Wall Street rattled over Fed worries

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A trader works, as a screen displays a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 31, 2024.

Brendan McDermid | Reuters

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Wall Street retreats
U.S. stocks lost ground on Monday and Treasury yields rose amid lingering concerns that the Federal Reserve may not cut rates as much as expected. The blue-chip Dow fell over 200 points. The S&P 500 also slumped after hitting a record high last week. The Nasdaq Composite also dropped 0.2%.

Oil’s supply crunch
The oil market faces a supply crunch by the end of 2025 as the world is not replacing crude reserves fast enough, according to Occidental CEO Vicki Hollub. About 97% of the oil produced today was discovered in the 20th century, she told CNBC.

Palantir surges
Shares of Palantir spiked 19% in extended trading after the company reported revenue that topped analysts’ estimates. In a letter to shareholders, Palantir CEO Alex Karp said demand for large language models in the U.S. “continues to be unrelenting.”

Red Sea tensions
Higher shipping costs due to tensions in the Red Sea could hinder the global fight against inflation, said the Organisation for Economic Co-operation and Development. Clare Lombardelli, chief economist at the OECD, told CNBC that shipping-driven inflation pressures remain a risk rather than its base case.

[PRO] Banking allure
The banking sector offers attractive opportunities despite an increase in volatility, according to fund manager Cole Smead. “It’s the banks that made bad decisions that are making [other] banks look attractive in pricing,” Smead told CNBC, who picked two bank stocks that are in play.

The bottom line

Investors are once again getting ahead of themselves on the Fed’s next move.

Markets were rattled after Federal Reserve Chair Jerome Powell reiterated the central bank is unlikely to rush to lower interest rates.

Wall Street has been parsing his hawkish comments, yet in essence what Powell said over the weekend was no different than what he shared at Wednesday’s press conference: that he wants to see more evidence that inflation is coming down to a sustainable level.

Still, the debate over the timing of rate cuts unsettled Fed watchers.

This sparked a sell-off spurred by higher bond yields. The yield on the 10-year Treasury spiked for a second day, trading around 4.163%. Typically, higher yields tend to indicate investors think the Fed will take longer to cut rates.

Fresh data out Monday also didn’t help. A new survey showed the U.S. services sector expand at a faster-than-expected clip in January.

This on top of the booming jobs report released Friday, fueled investor worries that rates may stay elevated for much longer.

Wall Street will now look ahead to the swath of Fed speakers this week. Perhaps they will shed more light on the path for rate cuts.

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February 5, 2024

The housing market was already painful, ugly and anxious. Now the 8% mortgage rate is back

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Today’s housing market is a toxic mix of high mortgage rates, high prices, tight supply and strangely strong pent-up demand — and it’s scaring off buyers and sellers alike.

Prices were already high, driven by supercharged demand during the height of the Covid-19 pandemic. Now the popular 30-year fixed mortgage rate is at 8%, the highest in decades, making things even tougher. Mortgage demand is at its lowest point in nearly 30 years.

“I think it’s painful. I think it’s ugly,” Matthew Graham, chief operating officer at Mortgage News Daily, said on CNBC’s “The Exchange” on Thursday.

During the first two years of the Covid-19 pandemic, the Federal Reserve dropped its benchmark rate to zero and poured money into mortgage-backed securities. The result was record-low mortgage rates for two solid years. That drove a buying frenzy, which was also fueled by a sudden urban exodus and the new work-from-home culture. Home prices jumped 40% higher from pre-pandemic levels.

Then, as inflation surged, the Fed hiked rates. That, ironically, made the housing market even more expensive. Usually when rates go up, home prices go down.

But this market is unlike historical ones because it also has a severe lack of supply. The Great Recession of 2008 and the ensuing foreclosure crisis hit homebuilders especially hard, causing them to underbuild for over a decade. They have still not made up the difference.

Who’s hurt by the current housing market?

September home sales drop to the lowest level since the Great Recession

Would-be sellers, meanwhile, are trapped. They have little desire to trade the 3% rate they currently have for an 8% mortgage rate on a new purchase.

“I don’t think anybody in my community of mortgage originators would disagree that in many ways, this is worse than the great financial crisis in terms of volume and activity,” MND’s Graham said.

He’s also unsure when the market will see a decline in rates. “But we do hear a chorus of Fed speakers, especially last week, in a very notable way, saying that they are restrictive and that they can wait and see what happens with the policy filtering through to the economy,” he said.

Sales of previously owned homes in September dropped to the slowest pace since October 2010, according to the National Association of Realtors. There are stark differences between today’s market and the foreclosure crisis era, however. Foreclosures today are extremely low, and most current homeowners are sitting on historically high home equity. The fact that so many refinanced to record-low interest rates between 2020 and 2022 also means that current homeowners have very affordable housing costs.

So, that leaves potential buyers stuck, too.

“I think people are anxious, and there’s a lot of buyer mentality of, ‘We’re going to wait and see.’ So a lot of people just want to sit tight and see what happens,” said Lisa Resch, a real estate agent with Compass in Washington, D.C.

The NAR is now lowering its 2023 sales forecast to a decline of as much as 20%, from a previous forecast of a 13% drop.

What’s next for housing prices?

Potential buyers waiting to see effect of higher rates on demand and prices

Prices are a different story.

“Prices look to be flat from this point onwards at an 8% rate, despite the housing shortage,” added Lawrence Yun, chief economist for the NAR.

Yun noted that metropolitan markets with faster job growth and relatively affordable prices, however, will see an upswing in sales. He points to Florida markets such as Tampa, Jacksonville and Orlando, as well as Houston, Texas, and Memphis, Tennessee.

Buyers today will likely get the best deals from homebuilders, especially the large production builders such as Lennar and D.R. Horton. The builders are helping with affordability by buying down interest rates for their customers. This is something they have not typically done in the past — at least not at this scale.

“Although our mortgage company has been offering slightly below market rate loans most of this cycle (just to be competitive), the full point buydown for the 30-year life of the loan we’ve been referring to recently as a builder incentive is not something we had done in previous cycles, at least not on the broad, majority basis we are doing so today,” said a spokesperson from D.R. Horton. “You might have found it on select homes in the past on an extremely limited basis.”

What about the housing supply problem?

Homebuilder sentiment drops as mortgage rates rise higher

Construction of single-family homes is rising slowly, but it is still nowhere near meeting demand. Builder sentiment is dropping further into negative territory, due to higher rates, but the new home market is still more active than the market for existing homes.

On the bright side of housing, apartment rents are finally cooling off, thanks to a record amount of new supply hitting the market. This gives renters less incentive to jump into buying. Demand for rentals, however, is rising.

“It appears slowing inflation and a still-strong job market are boosting consumer confidence and, in turn, spurring household formation among young adults most likely to rent apartments,” said Jay Parsons, chief economist at RealPage.

For those still wanting to upgrade to a bigger home or downsize to a smaller one, they are caught in a conundrum.

Prices are still rising due to the supply and demand imbalance, but sellers are being more flexible. So a buyer could purchase now at the higher rates and hope to get a break on the price, or they can wait until rates drop.

But when they do, there is likely going to be a flood of demand, resulting in bidding wars.

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October 21, 2023

The 30-year fixed mortgage rate just hit 8% for the first time since 2000 as Treasury yields soar

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JB Reed | Bloomberg | Getty Images

The average rate on the popular 30-year fixed mortgage rate hit 8% Wednesday morning, according to Mortgage News Daily. That is the highest level since mid-2000.

The milestone came as bond yields soar to levels not seen since 2007. Mortgage rates follow loosely the yield on the 10-year U.S. Treasury.

Rates rose sharply this week and last week, as investors digest more reads on the economy. On Wednesday, it was housing starts, which rose in September, though not as much as expected, according to the U.S. Census Bureau.

Building permits, an indicator of future construction, fell, but by a less than the expected amount. Last week, retail sales came in far higher than expected, creating more uncertainty over the Federal Reserve’s long-term plan.

These higher rates have caused mortgage demand to plummet, as applications fell nearly 7% last week from the previous week, according to the Mortgage Bankers Association.

“Here’s another milestone that seemed extreme several short months ago,” said Matthew Graham, chief operating officer of Mortgage News Daily. “The fact is that many borrowers have already seen rates over 8%. That said, many borrowers are still seeing rates in the 7s due to buydowns and discount points.”

The homebuilders are using buydowns to help customers afford their homes. They do this through their mortgage subsidiaries.

While they had used the financing tool very sparingly in the past, it is now the top incentive among builders, according to industry sources.

“Although our mortgage company has been offering slightly below market rate loans most of this cycle (just to be competitive), the full point buydown for the 30-year life of the loan we’ve been referring to recently as a builder incentive is not something we had done in previous cycles, at least not on the broad, majority basis we are doing so today. You might have found it on select homes in the past on an extremely limited basis,” said a spokesperson from D.R. Horton, the nation’s largest homebuilder.

The average rate on the 30-year fixed was as low as 3% just two years ago. To put it in perspective, a buyer purchasing a $400,000 home with a 20% down payment would have a monthly payment today of nearly $1,000 more than it would have been two years ago.

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October 18, 2023