D.R. Horton Priced to Move, and Move They Did
This “Chatter” in from Hanley Wood Market Intelligence’s Las Vegas regional manager Shane Whitmore.
D.R. Horton's Vegas Stakes -- Click on Map for Expanded Interactive Version
Management is still working on all of the final numbers but one thing is for sure …D.R. Horton’s “Short Sale” was a huge success! Many communities reported that their traffic was off the charts and that they had a hard time keeping up. This was a move in the right direction, sales agents were thrilled with the amount of people that came to visit their projects over the weekend (during the past several months many had been lucky to get 4-6 people a week, most will go days with nobody). They are hoping to have some final numbers in the upcoming days but it looks like they sold close to 155 homes in just two days! D.R. Horton reduced their base prices on all of their homes that had started construction to match foreclosure and short sale home pricing throughout the valley. All in all, the sales agents are very excited with the outcome of the sale and their attitudes are now a bit more positive!
For a more sober take on what the fuss is all about in D.R. Horton land, check what J.P. Morgan executive vice president/senior equity analyst Michael Rehaut has to say on the whys and wherefores of the price push:
Pricing continues to soften, with some aggressive price reductions seen leading off the selling season . . . . Overall, we believe prices have continued to slide in recent months; while one builder quoted a 5% decline in the market over the last three months, we believe this is somewhat sanguine, and based on our general observations of trends, estimate the drop to be closer to 10%. Moreover, in front of the Spring selling season, which began approximately mid-January, we note that some builders have implemented aggressive price reductions and discounts, similar to tactics seen during parts of last year’s selling season and throughout the year in general. Specifically, American West dropped its base prices at the beginning of the year by $30K, or roughly 11% on average, in order to price at or below the market, as it has recently shifted its strategy from holding price and margins in 2008, which resulted in 1% market share for the year, to generating cash flow. This has driven some incremental sales in the last couple weeks. Moreover, we point to a D.R. Horton “Short Sale” across its 16 communities this past weekend, promising “record low pricing.” While we believe this is consistent with DHI’s cash flow generation strategy, we nonetheless view the sale as evidence of the challenging dynamics still facing the market. As a result, we believe these actions will trigger other builders to follow suit and lower price, reinforcing the negative trends already in place.
. . . likely driven by foreclosure activity remaining a large portion of the resale and overall market . . . Specifically, we note that builders today largely price to compete with the resale market, which, de facto, is essentially the foreclosure market, in our view. Specifically, the resale market had roughly 3,000 sales in Dec and inventory in the low-20K range, versus minimal numbers for the new home market. However, one builder noted that foreclosures represent 60% of the resale market, and KBH noted that almost all of its potential customers also look at foreclosures. As a result, given that still more foreclosures currently enter the market than exit, and the one builder pointed to approximately 70% of homes in Vegas being “underwater” (i.e., the home value is worth less than the mortgage), we believe foreclosures will pressure prices downward.
Still, inventory turned, is less inventory to turn, which is what home builders need to do whether or not it’s the roughest selling environment in a lifetime.
The question is this: If home builders can engineer their own private-enterprise version of terms they’re asking for in the Fix Housing First initiative, such as price reductions [tantamount to the tax credit they're asking for] and home builder sponsored mortgage rate buy-downs, why bother asking Congress for tax payers’ money to accomplish the same goal?
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I don’t praise DR Horton, they are one of the many large production builders that created this mess. They overbuilt homes in communities around the country by helping the buyers through their DHI Mortgage get the funding to purchase the homes. How many were sub-prime well the results appear to speak volumes if you look at where they built and the foreclosure rate do to sub-prime lending.