UPDATE 2-D.R. Horton orders down 37 pct, spring sales weak

Tue Apr 10, 2007 9:38am EDT

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CHICAGO, April 10 (Reuters) - D.R. Horton Inc. (DHI.N), the largest U.S. home builder, said on Tuesday orders for new homes tumbled 37 percent last quarter and the spring selling season has been slower than usual, suggesting the U.S. housing market has not yet hit bottom.

Chairman Donald Horton said conditions remain tough in most markets because of high inventories of unsold new and existing homes. He also said "the spring selling season has not gotten off to its usual strong start."

The downturn in the U.S. housing market has hit home builders and related sectors hard, and tightened loan policies due to the subprime mortgage crisis have only exacerbated the industry's pain.

However, Thomas Leritz, a portfolio manager of Argent Capital Management in Clayton, Missouri, said D.R. Horton's news was not surprising, as the industry works through excess inventory.

"It's in line with the current trajectory where the demand continues to be soft," said Leritz, whose firm does not own home builder stocks but follows the sector closely.

UBS analyst Margaret Whelan said in a research note that the orders decline was larger than expected, and she cut her 2007 and 2008 earnings estimates for D.R. Horton. However, she said the flat pricing from the prior quarter showed management was focused on protecting profits.

Last month, D.R. Horton Chief Executive Don Tomnitz said this year was "going to suck" for home builders. He said the company may have to take further write-offs to reflect unsold homes and lower land values.

Tomnitz added that the industry's pricing power would return by January and that 2008 would be better than 2007 but still not great.

In January, he said he expected the U.S. housing market to trough by mid-year and remain there until next year.

DREARY NUMBERS

D.R. Horton's net sales orders in the fiscal second quarter, ended March 31. fell to 9,983 homes from 15,771 a year earlier, and the dollar value of the orders sank 41 percent, to $2.6 billion from $4.4 billion.

While the Fort Worth, Texas-based company saw orders fall in all regions, the biggest decline was in California, where they fell 59 percent to 1,107 homes. California was also the market that saw the biggest dip in dollar value of orders, down about 57 percent to $533.5 million.

Prospective buyers canceled at a 32 percent rate from January to March, down from 33 percent in the prior quarter, but above the usual 16 percent to 20 percent rate, D.R. Horton said.

It has become more difficult for many buyers to obtain mortgages as lenders have tightened their underwriting standards. The steeper decline in the dollar value of D.R. Horton's home orders, relative to the number of orders, suggests that some buyers are "downsizing" to buy homes they can more easily afford.

First-time home-buyers account for about 40 percent of D.R. Horton's sales.

The company has contracted some operations to prepare for a slowing housing market, including a reduction in the number of lots it controls. The company operates in 27 U.S. states and builds homes with sales prices ranging from $90,000 to more than $900,000.

Shares of D.R. Horton were down 20 cents to $21.84 in early trading on the New York Stock Exchange. Through Monday, the shares had fallen 17 percent this year, matching the decline in the Dow Jones U.S. Home Construction Index .DJUSHB.

((Reporting by Jonathan Stempel and Ben Klayman; editing by John Wallace; Reuters Messaging: jon.stempel.reuters.com@reuters.net, 646 223 6317))

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