Home Builder D.R. Horton
Posts 37% Drop in Orders

D.R. Horton Inc., the nation's largest home builder by number of units, said fiscal second-quarter orders fell 37%, an indication that the crucial spring home-selling season is proving weaker than many builders had hoped.

The Fort Worth, Texas-based company said it had orders for 9,983 homes, compared to 15,771 homes a year earlier. The dollar value of orders was $2.6 billion for the quarter ended March 31, down from $4.4 billion a year earlier.

"Market conditions for new home sales continue to be challenging in most of our markets as inventory levels of both new and existing homes remain high," Chairman Donald R. Horton said in a statement. "Our cancellation rate is essentially unchanged from the prior quarter, but it remains above our historical range as we continue to see an increase in the use of sales incentives in many of our markets."

All geographic regions declined in the fiscal second quarter. California had the greatest percentage decline, down 59% to 1,107 homes. The Southeast, South Central and Southwest regions were down 30%, 34% and 39%, respectively. The West was down 28%. The Northeast had the smallest decline, down 21%.

Horton is the latest builder to report that the usually strong spring selling season has gotten off to a slow start. Its deteriorating orders come amid a tightening of mortgage-lending standards and a softening of home prices in many markets.

Last week, Dominion Homes Inc. reported a 54% drop in homes sold during the first quarter. The Dublin, Ohio, company sold 218 homes in the first quarter, for a total sales value of $43.5 million, down from 475 homes, or $89.3 million, a year earlier.

Horton's second quarter drop in orders -- which exceeded several analysts' estimates -- followed a 23% drop in the first quarter. Horton also said that its cancellation rate of 32% was essentially flat from the prior quarter, but remained above historic levels.

UBS analyst Margaret Whelan said in a research note that the cancellations are likely to remain high throughout the year, "as the benefit from the price reductions is offset by the negative impact of the tighter credit standards. In turn, this will generate further margin pressure and delay the timing for a recovery."

Banc of America Securities analyst Dan Oppenheim said in a note that the high cancellations will continue to force builders to "discount spec homes more aggressively," referring to homes built without buyers. That, in turn, will drive home prices lower. Mr. Oppenheim said these home-price declines will likely prompt Horton to reduce the value of land holdings on its books in the coming months, totaling about 8% of the company's book value.

Horton said in late January that it didn't see any signs that the housing downturn has abated. Chief Executive Donald Tomnitz said at the time the industry was still in the early stages of a multiyear downturn, and expected the housing sector to remain challenging through much of the rest of 2007.

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