Shares of U.S. homebuilders have recently taken a hit following a warning from D.R. Horton about the impact of volatile mortgage rates and increased incentives on new home sales on their profit margins.
Decrease in Stock Value
D.R. Horton’s stock fell by 9% to $143.31 during afternoon trading, although it is worth noting that it has seen a 50% increase over the past 12 months. Other homebuilder stocks were also affected, with Toll Brothers slipping almost 6%, Lennar shares falling 5%, and Tri Pointe Homes and Beazer Homes USA both experiencing a decline of about 5%. PulteGroup and KB Home shares both dropped approximately 6%.
Impact on ETFs
The broader market was also impacted, as the SPDR S&P Homebuilders ETF saw a decrease of more than 3%, while the iShares US Home Construction ETF fell over 5%.
Warning Signs from D.R. Horton
In its recent report, D.R. Horton disclosed a fiscal first-quarter profit of $2.82 per share, falling short of the $2.87 per share expected by analysts surveyed by FactSet. Chief Financial Officer Bill Wheat addressed the issue during a conference call with analysts, sharing the company’s strategy to make homes more affordable through incentives and reducing home sizes.
However, Wheat also explained that the effect of selling houses with these incentives will have a negative impact on margins in the second quarter. Additionally, the company’s margin was further affected by the volatility of mortgage rates towards the end of 2023. Although D.R. Horton employs a hedging program to offer mortgages below market rate, the rapid decline in mortgage rates at the end of the year had an adverse effect on company results.
In summary, U.S. homebuilders are currently facing challenges due to volatile mortgage rates and increased incentives affecting profit margins. D.R. Horton’s recent warning has led to a decline in stock values, as well as impacting the broader market through ETFs. The company is actively working to address these concerns and make its homes more affordable.