Leading U.S. homebuilder raises its outlook for 2006

D.R. Horton Inc. focuses on steady demand for mid-price homes

November 27, 2005|By THE DALLAS MORNING NEWS

DALLAS -- D.R. Horton Inc., one of the nation's largest homebuilders, has raised its outlook for the next year on strong demand, despite signs that the great American housing boom is slowing down.

The signal came as Fort Worth, Texas-based Horton posted a 61 percent jump in fiscal fourth-quarter profits, beating estimates. Horton also became the first U.S. homebuilder to close more than 50,000 homes in a year.

Analysts said Horton's improving forecast and results reflected the market's steady demand for mid-price homes, compared with lagging sales forecasts for luxury homes.

This month, Toll Brothers Inc., a builder of luxury homes, dragged down the entire sector with a warning that it plans to build fewer houses and expects to cut its earnings outlook for next year.

"We have not seen the slowing in the market that some of our competitors have indicated," Horton Chief Executive Officer Donald J. Tomnitz said in a telephone interview.

Still, there's growing evidence that the housing market is slowing down, which could spell bad news for many homebuilders.

The difference between sellers' asking prices and buyers' offers has been growing in many areas. The number of homes for sale is also increasing. Mortgage rates have been rising, making it more expensive to borrow money.

Many analysts forecast that home sales could fall next year by about 5 percent. The National Association of Home Builders' index of builder confidence fell this month, reflecting concerns that the market will slow.

Tomnitz said such concerns did not necessarily cloud Horton's future. A downturn in the homebuilding market might help it gain market share, since smaller builders typically suffer more in downturns.

The company will also benefit from its focus on entry-level buyers and its geographic reach, which gives it the ability to balance weakness in one area with strength in another.

Active in 25 states, the company sells about 40 percent of its homes to first-time buyers and another 40 percent to second-time buyers. Half its homes sell for $250,000 or less.

"We've positioned ourselves to be in the best part of the homebuilding market," he said. "If you're in a $500,000 home today, you don't need to move into a $750,000 home. That's a discretionary buy."

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