D.R. Horton is selling more homes, but its cancellation rates also are higher in the company’s preliminary quarterly results, a sign that rising mortgage rates may be affecting the market.
Homes closed in the fiscal fourth quarter ended Sept. 30 were up 11% from a year ago at 14,674. Revenue was up 9% at $4.4 billion. Net sales orders were up 11% at 11,509 homes, and the value of net sales orders was up 10% at $3.4 billion, but the company’s cancellation rate was up a percentage point at 26%.
D.R. Horton’s stock price initially dropped 1.9% in response to its slightly higher cancellation rate, which was five percentage points higher than during the previous quarter, according to Seeking Alpha. Higher cancellation rates can be a sign the housing market is slowing.
The rising rate environment appears to be responsible for a broader slowdown in housing activity, according to a Keefe, Bruyette & Woods earnings preview for the mortgage finance sector.
Average mortgage rates dropped last week after five consecutive weeks of increases, but strength in recent economic indicators suggests the decline was an aberration and rates will continue to rise from here.
Overall, demand for D.R. Horton’s product offerings has been “solid,” Chairman Donald Horton said in a press release.
“We are confident in our team’s ability to drive growth as economic and housing fundamentals remain favorable, inventory levels are low and we continue to see good demand in our markets, particularly at affordable price points,” he said. “With almost 30,000 homes in inventory at the end of the year and an attractive lot position, we continue to expect strong performance over the next year and are well-positioned to grow our consolidated revenues at a double-digit pace.”
D.R. Horton plans to release its full financial results for its fiscal fourth quarter in November.