But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
D.R. Horton plans to work harder to serve the first-time homebuyer
D.R. Horton CEO Donald Tomnitz said that the first-time homebuyer will drive the next leg in the sector and has been underserved in this recovery. He put some of the blame on tight credit, but also a failure on the part of the builders to really reach out to them. D.R. Horton plans to offer a line of $120,000 to $150,000 homes to address this market
The company seems happy with their results
Donald R. Horton, chairman of the board, characterized the quarter: “Our homebuilding and financial services operations delivered a great quarter, highlighted by pre-tax income of $201.9 million and a pre-tax income margin of 11.6%. The dollar value of our homes sold, closed and in backlog all increased by double-digit percentages. Our net sales orders in the March quarter were up 57% sequentially from the December quarter and up 9% from the March quarter last year. Our average sales price increased 10% to $278,900 reflecting pricing power in many of our markets.”
The macro picture for the builders looks good
People forget that a housing bust is getting pretty long in the tooth. The housing market peaked in 2006, which was eight years ago. A lot of excesses from the bubble have been worked off, and in many ways, we’ve seen the opposite problem—a shortage of existing and new inventories. Part of this trend has been due to foreclosure laws, and part has been due to caution on the part of the builders.
Take a look at the above chart. It shows housing starts going back to 1959. You can see that housing starts have averaged about 1.5 million units going back that far. Since the bust, we’ve been about half that number. That’s a lot of under-building over the past six years. The only thing that has kept even a semblance of normal supply and demand has been the low household formation numbers that have accompanied the Great Recession. The important thing to keep in mind is that those numbers weren’t due to fertility rates 25 years ago. They were due to a lousy economy. This means there’s tremendous pent-up demand that will unleash once the economic recovery filters down to the young. Homebuilders with lots of exposure to the first-time homebuyer—like D.R. Horton (DHI) and PulteGroup (PHM)—will benefit from this demand the most. D.R. Horton plans to address the first time homebuyer directly. Maybe it’s time to rotate out of luxury builders like Toll Brothers (TOL) and NVR (NVR). Investors who want to invest in the homebuilding sector as a whole should look at the S&P SPDR Homebuilder ETF (XHB).
© 2013 Market Realist, Inc.