The biggest U.S. homebuilder by volume is upping the number of homes it plans to sell over the next year despite higher mortgage rates and inflation cutting into its profits during its latest quarter.
D.R. Horton expects to close on between 86,000 homes and 89,000 homes in its next fiscal year, topping fiscal 2023 in which it closed on 82,917 homes. Besides for-sale houses, the builder also sold 6,175 single-family rental homes for $2 billion during its latest fiscal year.
In all, D.R. Horton sold a record of 89,092 houses between these two platforms, making the builder the nation's largest homebuilder for its 22nd consecutive year, Donald Horton, chairman of the board, said in a statement.
"Despite continued higher mortgage rates and inflationary pressures, our net sales orders increased 39% from the prior year quarter, as the supply of both new and existing homes at affordable price points remains limited and demographics supporting housing demand remain favorable," Horton added. "We are well-positioned to meet changing market conditions with our affordable product offerings and flexible lot supply and are focused on turning our inventory to maximize returns and capital efficiency in each of our communities."
For its latest fiscal year, about 68% of the homes D.R. Horton sold were under $400,000.
The Arlington, Texas-based homebuilder expects to continue to use a "higher level of incentives in fiscal 2024, particularly rate buy-downs," executives told investors during the company's earnings call Tuesday.
D.R. Horton closed on 22,928 homes during its fourth quarter that ended Sept. 30, and plans to close on between 18,500 homes and 19,000 homes during the first quarter of fiscal 2024, showing diminished demand for houses amid challenging economics, including the current 30-year mortgage rate nearing 8% for the first time in decades and prices for houses still surging.
The Tuesday earnings call was the last one in which former President and CEO David Auld was in attendance. Auld stepped down from his roles during D.R. Horton's latest quarter after nearly nine years at the helm. He is now an executive vice chairman on D.R. Horton's board of directors. He was replaced as president and CEO on Oct. 1 by Paul Romanowski, who previously was one of the co-chief operating officers at the homebuilding company.
Future Plans
Executives told investors the company would continue to use incentives and build smaller houses to meet the continued demand for affordable housing throughout the United States. According to the National Low Income Housing Coalition, there's a shortage of 7 million affordable homes for millions of low-income families.
"To adjust to changing market conditions, we are reducing the size of our homes and will utilize a higher level of incentives in fiscal 2024, particularly rate buy-downs," Michael Murray, executive vice president and chief operating officer at D.R. Horton, said during the earnings call.
Those rate buy-downs are cutting into the company's profits. For the fourth quarter of 2023, net income totaled $1.5 billion, compared with the same period the prior fiscal year of $1.6 billion.
Meanwhile, the company's rental platform has surged during the fourth quarter with its rental operations generating $217.2 million of pretax income on $1.4 billion of revenue, compared with a loss of $13.1 million on $21.1 million of revenue in the same quarter of fiscal 2022.
For the fiscal year that ended Sept. 30, D.R. Horton's pretax income for its rental operations totaled $524.2 million on revenue of $2.6 billion, compared with pretax income of $202 million on revenue of $510.2 million the prior fiscal year. The homebuilder entered the rental business with single-family rentals and apartments in 2021.
"We saw significant increases in revenue and profits as the platform is maturing," Romanowski said. "Due to the uncertainty of the capital markets, we are not going to release any guidance in 2024, but, based on our pipeline, we'll see more multifamily closings in 2024 than 2023."