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* Q2 costs jump 10 pct
* Analysts worry over rising incentives
* Quarterly orders of 16,805 homes beat estimates (Adds details from conf. call, CEO and analyst comments; updates shares)
April 25 (Reuters) - D.R. Horton Inc forecast 2019 revenue below Wall Street estimates and did not provide an outlook on gross margin for the year, spooking investors who have been worried about the impact of rising costs on future profits.
Shares of the No.1 U.S. homebuilder fell about 5 percent in morning trade, dragging those of rivals such as Lennar Corp and PulteGroup Inc lower.
Housing market fundamentals have been strengthening due to lower mortgage rates, but Horton's effort to make its homes more affordable is coming at a cost amid widespread land and labor shortage in the industry.
Some analysts have said the company has been spending more on incentives to spur sales. "Incentives is just one lever that is causing them some lack of clarity right now," JMP Securities analyst Peter Martin said.
Horton's costs rose 10 percent to $3.26 billion in the second quarter, while its average closing price for the second quarter slipped 1 percent to $295,300.
Home sales data for March showed builders were unable to break more ground on lower-priced housing projects - an area where Horton has been focusing on.
"In terms of the gross margin, we're balancing pace and price margin and volume to generate the best returns we have," Chief Financial Officer Bill Wheat said in a conference call with analysts.
"The incentive levels that we had to put in place to regain momentum back in Q1, we feel good about the level that we're at and the ability to potentially start to carve some margin back."
In the reported quarter, Horton said gross margins fell sequentially to 19.3 percent, mainly due to cost increases, less pricing power and higher incentives.
"Without the gross margin guidance (full year) people get a little nervous they could be at the lower end of gross margins," JMP Securities' Martin said.
The company, whose homes sell in the price range of between $100,000 and $1 million, said 69 percent of its homes sold in the second quarter were under $300,000.
"Affordability concerns have caused some moderation in demand for homes since late 2018 particularly at higher price points," Chief Executive Officer David Auld said.
Horton said it expects to deliver between 55,000 homes and 56,000 homes in 2019. Analysts on average were expecting home sales of 55,668 homes.
The company topped expectations for quarterly orders at 16,805 homes at an average selling price of $294,100, down 2 percent from a year earlier.
But its full-year revenue forecast of $16.7 billion to $17.0 billion fell short of the average analyst estimate of $17.16 billion.
Net income attributable to Horton was largely flat at $351.3 million, or 93 cents per share, in the quarter ended March 31.
Revenue rose 9 percent to $4.13 billion and beat analysts' estimates of $4.05 billion.
Excluding items, the company earned 87 cents per share, according to IBES data from Refinitiv, compared with estimates of 86 cents.
(Reporting by Sanjana Shivdas in Bengaluru; Editing by Saumyadeb Chakrabarty and Arun Koyyur)