Horton’s Orders Plunge as It Struggles to Build Enough Homes

D.R. Horton Inc. fell after it reported an unexpected plunge in new home orders. The problem wasn’t a lack of demand, according to the company. Instead, there was too much of it.

In the three months through June, purchase contracts fell 17% from a year earlier to 17,952, the Arlington, Texas-based builder said in a statement on Thursday. Analysts surveyed by Bloomberg expected 22,385 on average.

The shares dipped as much as 5.4% to $86.51 in New York, the biggest intraday decline in more than two months. The stock had climbed 33% this year through Wednesday, compared with a 25% gain for an S&P index of homebuilder stocks.

Demand for homes exceeded the company’s capacity to deliver them so it slowed the pace “to more closely align to our current production levels, while building out the infrastructure needed to support a higher level of home starts,” said Donald Horton, the company’s chairman.

Horton’s Orders Plunge as It Struggles to Build Enough Homes

Builders have more demand than they can handle as Americans migrate to the suburbs, but they’re also facing a cascade of challenges amid higher costs for labor, land and materials costs and delays in sourcing everything from windows to appliances.

Builders have been jacking up prices and focusing more on production than sales. But their confidence, inflated during the unprecedented pandemic housing boom, has been somewhat shaken of late.

Sentiment among U.S. homebuilders, while still historically high, declined in June to a 10-month low. While housing starts jumped more than forecast in June, permit applications -- a proxy for future construction -- fell to the lowest level since October.

Horton’s Orders Plunge as It Struggles to Build Enough Homes

D.R. Horton said it is selling homes when they’re nearing completion to provide more certainty to buyers on a closing date. And while the surprising decline in purchase contracts weighed on the shares, the slowdown is actually a sign of how strong the market is, according to Drew Reading, an analyst at Bloomberg Intelligence.

“Giving us greater confidence to the narrative surrounding an imbalance between supply and demand is the 22% increase in average order prices,” Reading said. “This should also drive higher profitability in coming quarters.”

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