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Housing ETFs Up on D.R. Horton's Upbeat Earnings

On Apr 20, D.R. Horton Inc. (DHI) reported second-quarter fiscal 2023 (ended Mar 31, 2023) results before the market opened, wherein earnings and revenues surpassed the Zacks Consensus Estimate. Shares of the company gained about 5.6% in the key trading session on Apr 20.

DHI reported adjusted earnings of $2.73 per share for the fiscal second quarter, beating the Zacks Consensus Estimate of $1.90 by 43.7% but decreasing 32.3% from the year-ago figure of $4.03. Total revenues (Homebuilding, Forestar, Rental and Financial Services) were $7.97 billion, down 0.3% year over year. The reported figure topped the consensus mark of $6.56 billion by 21.6%.

Although, earnings and revenues declined on a year-over-year basis due to prevailing softness in the market, the company highlighted that net sales orders increased 73% from the fiscal first quarter, defying the prevailing higher mortgage rates and inflationary pressures.

The company believes that the housing demand will remain favorable, courtesy of a limited supply of new and existing homes at affordable price points despite challenging market conditions, comprising higher rates and uncertain economic conditions.

Segmental Details

Homebuilding revenues of $7.47 billion decreased by a meager 0.5% from the prior-year quarter. Home sales were $7.45 billion, slightly down from $7.5 billion reported a year ago. Home closings were down 0.8% from the prior-year quarter to 19,664 homes.

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Net sales orders were down 5% year over year to 23,142 homes. The value of net orders also declined 11% year over year to $8.6 billion. The cancelation rate (on gross sales orders) was 18%, up from 16% a year ago.

FY23 View

DHI expects consolidated revenues of $31.5-$33 billion (versus $33.5 billion in fiscal 2022). Homes closed are anticipated to be 77,000-80,000 units. For the Rental business, the company expects homes closed within 4,000-5,000 units. Fiscal 2023 cash flow from homebuilding operations on a consolidated basis is expected to be higher than fiscal 2022.

Upbeat Earnings Reported By Other Housing Companies

Not only D.R. Horton, KB Home KBH too reported better-than-expected first-quarter fiscal 2023 (ended Feb 28, 2023) results, defying the challenging housing market conditions. Its earnings and revenues beat the Zacks Consensus Estimate. Lennar Corporation LEN too reported impressive results for first-quarter fiscal 2023, where earnings and revenues beat the Zacks Consensus Estimate.

Is There Any Potential Improvement for the U.S. Housing Market?

The nationwide median sale price for existing homes rose slightly in March month-over-month to $375,700. However, compared to March 2022 it dropped 0.9%. The year-over-year declines in price have been seen for two successive months following a long period of price increases.

The U.S. housing market saw 131 consecutive months of year-over-year median sale price increases, the longest streak on record, before experiencing two successive months of decline. Moreover, the mortgage rates may decline in the medium term as the Fed might act less-hawkish ahead on cues of cooling inflation.

Against the above-mentioned backdrop and the upbeat DHI earnings results, investors may tap housing ETFs like iShares U.S. Home Construction ETF ITB and SPDR S&P Homebuilders ETF XHB. Both funds gained 1.73% and 0.72% on Apr 20, respectively. The funds are up 9.5% and 6.8% past month (as of Apr 20, 2023).

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KB Home (KBH) : Free Stock Analysis Report

Lennar Corporation (LEN) : Free Stock Analysis Report

D.R. Horton, Inc. (DHI) : Free Stock Analysis Report

SPDR S&P Homebuilders ETF (XHB): ETF Research Reports

iShares U.S. Home Construction ETF (ITB): ETF Research Reports

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