Home Builder Reports Drop in Cancellations, Optimism For New Year
DR Horton, one of the largest home builders in the U.S., said Tuesday that cancellations dropped in the final quarter of 2006, signalling that some confidence may be flowing back into the struggling housing market, MSNBC reports.
However, the Texas-based home builder said net orders fell 28 percent in the three months to December 31 amid “challenging” sales conditions and a substantial increase in incentives to first-time buyers.
DR Horton’s report adds weight to recent data suggesting that the national housing market has yet to reach a bottom, though a small rise in sales of new homes last month suggested that falling prices and rising incentives are tempting buyers back to the market.
Analysts remain cautious about data during the traditionally slow winter selling season, but are closely monitoring home sales and sentiment amid lingering concerns that the housing slowdown will “infect” the broader economy and aggravate the cooling U.S. economy.
DR Horton and rival home builders such as Pulte, Lennar and Centex have sliced construction programmes and boosted discounts in a bid to clear more than six months of unsold inventory, paving the way for a recovery in the broader market in 2008.
They have also used write-downs to soften the blow from $1.5 billion in charges against land they no longer plan to use, hurt badly by the exit of speculative buyers which once accounted for as much as a quarter of their business.
Nervousness about the market dampened new construction and pushed cancellation rates last year to more than 50 percent in once-booming markets such as Florida. DR Horton, which closed more than 50,000 sales of homes in its last fiscal year, said drop-out rates had fallen from 40 percent in the three months to September 30-33 percent in its fiscal first quarter to December 30.
Lennar, the largest U.S. builder by orders and revenues in the third fiscal quarter, warned earlier this month that it would take up to $500 million in land charges and report a fourth-quarter loss as Florida mortgage demand lessened and overall market conditions continued to weaken.
The Florida-based group is exposed to the once-booming markets in the west and the southeast of the country, and has pursued aggressive discounts to avoid contract cancellations, move homes aimed at the lower end of the market, and renegotiated land holdings as it reduces future building plans.
A similar strategy is being pursued by other members of the Big Six public builders, but Lennar’s decision to take $400-500 million in impairment charges and write-offs is by far the largest among its peers.
Sales of existing U.S. homes rose slightly last month though activity in the south remains depressed, suggesting the national sector has yet to reach its nadir.
According to the National Association of Realtors, sales of all existing homes rose 0.6 per cent in November - the second consecutive monthly rise - with median prices dipping as home mortgage costs remain steady. The inventory of unsold properties fell 1 percent from recent highs.
Most of the rise in the existing home business was driven by sales in the Northeast, and volumes continued to fall in the southern part of the country, which accounted for 38 percent of nationwide deals in 2005.
The south and west also account for three-quarters of new home sales, and analysts remain concerned about the pace of building despite signals from home builders that they were cutting construction following the exit of speculative buyers.