Homebuilders see profits grow amid sluggish existing-home sales

July 24, 2024 4:43 PM

Leading homebuilders collectively reported quarterly earnings that were on the upside over the past week, with the industry maintaining much of its momentum in an otherwise sluggish purchase market.

As sales for existing homes slowed in an environment marked by higher rates and limited inventory over the past several months, builders benefited, consistently finishing in the black as aspiring buyers considered new construction options. The trend continued in the most recent quarter based on earnings data.

Recent indicators raise some questions about subsequent earnings, though, with single-family housing starts and homebuilder sentiment both recently declining. On Wednesday, the government also reported new-home sales dropping to a seven-month low.

With expectations of lower rates coming in the second half of the year, the outlook for the homebuilding industry still looks promising, at least in the eyes of investors. Builder stocks rallied in mid July following recent inflation and jobs reports. The S&P Composite Homebuilding index is also up by almost 22% since July 1.

The following are some key earnings numbers from some public homebuilders.

NVR Inc.

The parent company of Ryan Homes, NVHomes and Heartland Homes saw second-quarter net income of $400.9 million, which represented an 0.8% decrease from $404.1 million worth of profit a year ago. Compared to the first quarter, profits increased 1.8% from $394.3 million.

The Reston, Virginia-based company, which operates both building and mortgage lending businesses, saw new-home orders increase by 2.7% to 6,067 units compared to 5,905 in the second quarter last year. The average price of new orders was $458,800, also up approximately 3% year over year.

Homebuilding revenue totaled $2.55 billion during the most recent quarter, rising 11.6% from $2.28 billion 12 months earlier. Income within the segment totaled $488.3 million, compared to $434.8 million a year ago and $441.7 in the first quarter.

NVR's lending operations brought in $45 million in income, surging from second-quarter 2023's $36.5 million. Between January and March, mortgage income equaled $29 million. Profits came off of $1.53 billion in loan production, rising approximately 11% from one year earlier. This compared to $1.38 billion both three months earlier and in the second quarter of 2023.

PulteGroup Inc.

Atlanta-based PulteGroup posted a profit of $809.1 million for the three months ending June 30, with the bottom line surging 12.3% higher from $720.3 million in the second quarter of 2023. The number was also 22% higher than the $663 million earned in the first quarter.

Net new orders totaled 7,649, decreasing from 7,947 homes in the same period a year ago. The dollar value of net new orders, though, increased by approximately 2% to $4.4 billion.

"While interest rate movements can impact short-term homebuying demand, long-term market dynamics continue to benefit from a structural shortage of homes caused by years of underbuilding," said PulteGroup CEO and President Ryan Marshall.

Second-quarter revenue related to homebuilding and land equaled $4.49 billion, up from $4.1 billion one year ago. Financial services, which includes mortgage lending operations, garnered $111.7 million, increasing from $92.2 million.

Pre-tax income within homebuilding came in at $985 million in the second quarter, while financial services saw a profit of $63.4 million.

D.R. Horton Inc.

The Arlington, Texas-based company, the country's largest homebuilder by volume, reported net income of $1.37 billion for the three months ending June 30. The total increased 1.1% from $1.35 billion over the same period last year and 15.5% from $1.18 billion in the prior quarter.

The company operates on a fiscal calendar that begins on Oct. 1. In addition to building and lending units, D.R. Horton family of companies includes a rental subsidiary.

Revenue at the company finished at $9.97 billion with the bulk of $9.24 billion coming from homebuilding operations. Numbers headed up from the prior year's comparable period by approximately 2.5% and 5.8% from $9.73 billion and $8.73 billion

The financial services unit contributed $242.3 million to total revenue during the quarter, increasing from $228.5 million 12 months earlier.

Net sales orders rose by a little over 0.5% to 23,001 units from 22,879 a year ago but were flat in value at close to $8.7 billion.

Taylor Morrison Home Corp.

The homebuilder and land developer headquartered in Scottsdale, Arizona, saw net income decrease 15% on an annual basis to $199.5 million from $234.6 million. Compared to the first quarter profits rose 4.8% from $190.3 million. The second-quarter profit came off of $1.99 billion in revenue, which was 3.4% lower from $2.06 billion a year ago, but up 1.7% from $1.7 billion at the end of March.

Its construction unit saw revenue from home closings of $1.9 billion, down from $2 billion a year ago. The decrease occurred even as net sales orders rose 2.9% to 3,111 from 3,023 year over year. Orders sold at an average price of $601,000, which was 2% lower than the $613,000 mean price in the second quarter of 2023.

Taylor Morrison's financial services division posted revenue of $48.9 million, up from $41.9 million a year ago.

"We are cautiously optimistic that lower interest rates and a continuation of positive housing fundamentals has set the stage for continued growth and positive momentum in our business," said Sheryl Palmer, Taylor Morrison chair and CEO.

For the full year, the homebuilder expects closed orders to total between 12,600 to 12,800.