Mortgage interest rate buydowns have allowed home builder volumes to run ahead of the market, Citi said. — Bloomberg
NEW YORK: Home builders are not being held back by “stubbornly elevated” land costs, according to Citigroup analysts.
The sector is well-positioned for further volume growth into next year, analysts led by Anthony Pettinari said in a note to clients.
D.R. Horton Inc and PulteGroup Inc saw increased demand this quarter, with net order volumes rising 37% and 24% year-over-year, respectively.
Last week, the sector outperformed the broader market, climbing 1.9% versus the S&P 500’s 1% advance, as builders continued to post better-than-expected earnings.
Mortgage interest rate buydowns have allowed home builder volumes to run ahead of the market, Citi said.
PulteGroup’s volumes are supported by its national programme, where it typically buys down rates to roughly 5.5%, the note said, adding that the company recently pointed to “demand strength persisting in July, despite benchmark mortgage rates nearing 7% in the month.”
“We see opportunity for sequential growth in net pricing as buydowns offset the pain of higher rates, and resale inventories are scarce,” the analysts said.
Taylor Morrison Home Corp, MDC Holdings Inc and Tri Pointe Homes Inc expect strength to continue into July, touting sales running in-line with normal seasonality.
And while Century Communities Inc reported some seasonal pressure in July, the company’s orders were still up 15% year over year. Meanwhile, M/I Homes Inc has seen “unseasonably strong” sales.
Tight inventory is also driving up average selling prices. MDC and Tri Pointe Homes reported raising prices in roughly 70% of their communities, while Taylor Morrison Home raised prices in more than half.
As demand remains robust, home builders have begun reducing incentives in select markets.
Land costs remain a major threat. While land sellers have shown willingness to negotiate in certain markets, the overall market has remained firm, according to Citi. — Bloomberg
