Is It Time to Buy to Buy Homebuilder Stocks? What D.R. Horton Told Us
These two metrics will inform us when the time is right.
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Following up on what we said earlier today in our Pro Portfolio video about homebuilder D.R. Horton (DHI) , we have confirmation that home prices continue to edge lower in the company’s backlog. We can pair that with the comment from Horton management that "Affordability constraints and cautious consumer sentiment continue to impact new home demand."
Horton also confirmed that in the current environment, sales incentives will remain elevated, which means, best case, a lid on margins but more likely continued margin and bottom-line pressure. Compared to the September and December 2024 quarters that delivered homebuilding gross margins between 22.7%-23.6%, those levels for the last two quarters averaged 20.0%. We also see that the average pricing level in Horton’s backlog fell further in the December quarter, which tells us the company is increasingly competing on price to win business.
We will continue to track these metrics at Horton and other homebuilders, looking for when we see backlog unit levels and backlog pricing levels stabilize. That will be a sign that use of incentives by homebuilders should begin to wane, and we are nearing a far more palatable time to add homebuilding exposure to the Pro Portfolio.
Between now and then, we will continue to look for opportunities in the repair and remodel market.
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At the time of publication, TheStreet Pro Portfolio had no positions in any securities mentioned.
