July 25, 2013 / 5:41 PM / 4 years ago

WRAPUP 1-Low land supply, higher mortgage rates slow homebuilder sales

* PulteGroup orders fall 12 percent to 4,885 homes

* D.R. Horton order growth slows to 12 percent

* Both builders expect sales pace to moderate

* PulteGroup shares fall 12 pct, D.R. Horton shares slide 9 pct

By Mridhula Raghavan and Sagarika Jaisinghani

July 25 (Reuters) - The top two U.S. homebuilders are slowing their sales pace as they face issues ranging from a shortage of land ready for development to a scarcity of building supplies and higher mortgage rates.

D.R. Horton Inc said the number of homes booked in the quarter ended June grew just 12 percent, compared with a 25 percent rise a year earlier.

PulteGroup Inc‘s, which recorded double-digit percentage growth rates in orders throughout last year, posted a 12 percent fall in the second quarter.

The results dragged down the Dow Jones Home Construction index, which fell 7 percent by Thursday afternoon.

U.S. homebuilders rode the housing recovery wave by selling more houses at higher prices through 2012, but have come under pressure from a recent spike in mortgage rates.

Interest rates have risen about 100 basis points since May and have hit housing demand, causing a flurry among investors.

When an analyst remarked on a post-earnings conference call that D.R. Horton’s Chief Executive Donald Tomnitz did not sound as enthusiastic as he did last quarter, the CEO said he was disappointed by mortgage rates rising sharply following recent remarks by Federal Reserve Chairman Ben Bernanke.

“It seems like one speech had a major impact on the industry and our sales, which was really a ridiculous reaction by the marketplace,” Tomnitz said.

However, the company said it did not expect a lasting impact from the higher interest rates.

For PulteGroup, the issues are more land related. The company, faced with a lower lot supply than D.R. Horton, is choosing to raise prices rather than to build homes faster.

“Don’t look for us to go back to the days where Pulte was grow grow grow at all costs, we want to be balanced,” Chief Executive Richard Dugas said on the company’s post-earnings conference call.

Homebuilders in general have also been hurt by building suppliers, hurt by tight credit and labor shortage, not being able to provide materials fast enough to keep up with demand.


PulteGroup’s net income fell to $36.4 million, or 9 cents per share, from $42.4 million, or 11 cents per share, a year earlier.

PulteGroup’s home sale revenue increased 19 percent to $1.22 billion, while D.R. Horton’s home sale revenue jumped 46 percent to $1.63 billion as both companies raised prices.

D.R. Horton’s net income fell 81 percent to $146 million, or 42 cents per share, from $787.8 million, or $2.22 per share, a year earlier when it recorded a tax benefit of $716.7 million.

D.R. Horton shares were down 9 percent at $19.33 in afternoon trading on the New York Stock Exchange. PulteGroup shares were down 12 percent at $16.22. Shares of other homebuilders such as Lennar Corp, KB Home and Toll Brothers Inc also fell. (Editing by Joyjeet Das)

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