Homebuilding stocks have been one of the brightest spots in the market's rally, but Tuesday's news shows the sector remains sensitive to interest rates and the impact on the housing market.
DR Horton (DHI) stock fell 9% Tuesday after the company reported lower-than-expected quarterly orders and first-quarter earnings per share that were lower than analysts expected. Investor reaction also caused the SPDR S&P Home Builders ETF (XHB) to fall by as much as 3%.
Both XHB and DR Horton closed at record highs on Monday.
Specifically, DR Horton said on a conference call with analysts that if mortgage rate declines stall, a concession strategy consisting of mortgage rate purchases that hurt margins but make homes more affordable for buyers. He said he would be cautious about making changes.
“This use of rate buying is not the first time for us in the past 12 months,” CEO Paul Romanowski said Tuesday. “We have been taking advantage of that incentive for more than 24 months, so we believe that in the future we will be able to remain competitive, not only in the new home market, but especially in the resale market, and be able to lower our monthly rates.” I believe it.''It is advantageous to pay the same amount for housing. Therefore, even if interest rates fall, we have no plans to stop using them in the short term.”
This comment differs from comments provided by KB Home (KBH) earlier this month, which indicated a reduction in incentives in the first quarter of this year.
Mortgage rates fell to 6.6% last week, the lowest level in seven months, down from 6.66% a year ago and 7% in September.
But long-term interest rates, which are linked to mortgage rates, have been rising recently, making investors less optimistic about the Federal Reserve's rate cuts starting in March.
New construction has been a major driver of housing inventory, as supply in the resale market fell to its worst level in decades last year, despite the DR Houghton printing downturn. In response, home builders across the country are rolling out more attractive incentives to drum up buyer interest and cushion the harsh shock of soaring interest rates and home prices.
DHI said it now expects the number of home closings to be 87,000 to 90,000 this fiscal year, higher than the previous forecast of 86,000 to 89,000.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.
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