D.R. Horton Orders Plunge as Cancellations Spike


D.R. Horton, the largest US home builder, Tuesday said net orders for new homes plunged 39 percent in its fourth quarter amid a spike in cancellations, as the US housing market continued to skip along rock bottom.

The Fort Worth, Texas-based homebuilder said it expects tough selling conditions to persist as banks impose stricter lending standards.

Despite holding a discount sale, D.R. Horton said net sales orders for the quarter ended Sept. 30 fell to 6,374 worth $1.3 billion from 10,430 or $2.5 billion. The company's cancellation rate in the quarter was 48 percent.

The US housing market has been suffering from a steep downturn as high prices and climbing interest rates have deterred prospective buyers. Problems in the credit market, stemming from defaults on mortgages to those with weak credit have exacerbated conditions. Tougher lending standards also have affected prospective buyers with good credit.

"Buyers continued to approach the home-buying decision cautiously," D.R. Horton Chairman Donald Horton said in a statement. "We expect the housing environment to remain challenging."

In a move to cut debt and inventory while generating cash, the homebuilder reduced the number of homes under construction in the quarter. That helped the company generate $1 billion in cash flow from operations during the fiscal year.

"Though we view the reduction in inventories favorably; given the build-up in total land before the downturn, we forecast DHI will realize greater impairments vs. peers," wrote UBS home builder analyst David Goldberg in a note to clients.

"Further, in our opinion, its exposure to entry-level buyers generates (additional) risks, as we believe liquidity for these mortgages will remain constrained."

D.R. Horton plans to release fourth-quarter results Nov. 20 before the market opens. Wall Street analysts on average expect the company to report a profit of 4 cents per share before charges and one-time items, down from 88 cents a year earlier, according to Reuters Estimates.

US housing starts in September are to be released on Wednesday, but analysts polled by Reuters said they expect them to sink further from the 12-year low set in August.

Last quarter, when D.R. Horton posted its first-ever quarter loss as a public company, it took a charge of nearly $1.28 billion, partly for a write-down on the value of projects in California, Las Vegas and other once-hot residential markets.
Charges of that size have become less of a rarity. Centex, the No. 4 US home builder, said it would take charges of about $1 billion for a myriad of write-downs, impairments, forfeited option deposits and provision for loan losses in its financial services unit.

D.R. Horton shares were off 41 cents to $13.17. They are down about 50 percent so far this year, roughly in line with the 51 percent drop in the Dow Jones U.S. home builders index.