Beat of the Week: D.R. Horton's Earnings Surprise A Precursor To Housing Revival?

Shares of D.R. Horton (DHI), America’s largest homebuilder, surged Thursday after the company reported quarterly earnings that far exceeded analysts’ expectations, implying the housing market may be stronger than it appears.

Earnings per share (EPS) fell 32% year-over-year to $2.73, far less than projections of a 52% plunge. Revenue, which was forecast to fall 19% to $6.45 billion, came in almost unchanged from a year earlier at $7.97 billion.

Net sales orders, or purchase contracts slipped just 5% to 23,142 homes, versus projections for 19,618 homes. The company’s average sales price for a new home was $372,900, down 7% from the same quarter last year.

The stronger-than-expected earnings could bode well for the U.S. housing market, which was hit last year by rising mortgage rates, low affordability, and an economic slowdown. 

U.S. housing starts, a gauge of home construction, surged in February to 1.43 million, recording their biggest one-month gain since 2020, before dipping slightly in March. The average rate on a 30-year fixed-rate mortgage guaranteed by Freddie Mac has fallen to 6.39% from 20-year highs above 7% recorded in the fall, making homes somewhat more affordable for prospective buyers.

"Despite higher mortgage rates and inflationary pressures, demand improved during the quarter due to normal seasonal factors, coupled with our use of incentives and pricing adjustments to adapt to changing market conditions," said D.R. Horton CEO David Auld.

He added that although higher rates and economic uncertainty may persist for some time, "the supply of both new and existing homes at affordable price points remains limited, and demographics supporting housing demand remain favorable."

Shares of D.R. Horton rose almost 6% Thursday and were little changed Friday. They’ve risen more than 20% year-to-date, outperforming the SPDR S&P Homebuilders ETF (XHB), a proxy for the performance of the home construction industry. They’ve also exceeded the performance of the broader S&P 500 real estate sector.