D.R. Horton—the largest firm on the 2022 Builder 100 list—reported strong results during the builder’s fiscal first quarter, including a 1% year-over-year increase of home building revenue and home sales ($6.7 billion), level with the same period a year ago. Despite a moderation in demand due to affordability challenges, the company closed over 17,000 homes and sold 13,000 homes in “what is typically the seasonally slowest quarter of the year,” according to president and CEO David Auld.

During the quarter, D.R. Horton sold homes later in the cycle to better ensure the certainty of the home close date and mortgage rate for buyers. According to executive vice president and co-chief operating officer Paul Romanowski, “almost no sales” occurred in the quarter prior to the start of home construction. The builder’s cancellation rate for the quarter was 27%, higher than 15% seen during the same period a year ago but an improvement from 32% during the builder’s fiscal fourth quarter.

“As you've seen our cancellation trend moderate and cancellation rate moderate, we have a younger backlog that have signed contracts more recently,” Romanowski told investors during the company’s quarterly earnings call. “Certainty of home close date and mortgage rate is very important. So, as we have cycled through and we’re improving our housing inventory turns, I think that’s where you’re seeing our reduction in cancellation rate.”

D.R. Horton also reported net sales orders decreased 38% to 13,382 homes in the fiscal first quarter. The builder’s sales order backlog of homes under contract decreased 46% to 15,579 homes.

“We are continuing to offer mortgage interest rate locks, buydowns, and other incentives to drive traffic to our communities, and we are reducing home prices where necessary to optimize the returns on our inventory investments,” Romanowski said on the earnings call. “Our second quarter sales volume will depend on the strength of the spring selling season, and we currently expect significantly higher levels of net sales orders in the second quarter as compared to the first quarter based on historical seasonal trends, current market conditions, and our inventory of completed homes available for sale.”

D.R. Horton increased its home starts on a quarterly basis in the fiscal first quarter to 13,900 homes and ended the quarter with 43,200 homes in inventory. The number of homes in inventory represented a 21% decrease on a year-over-year basis and a 7% decrease from the previous quarter. At the end of the fiscal first quarter, D.R. Horton had 27,800 homes in inventory unsold, including 7,100 unsold completed homes in inventory. The company will continue to evaluate demand and adjust its inventory and start pace based on market conditions.

“We are focused on improving our housing inventory turnover. With more completed homes not available for sale, we expect our mix of homes sold and closed in the same quarter to increase back toward our normal historical levels,” Romanowski said.

Bill Wheat, executive vice president and chief financial officer, noted that D.R. Horton expects increased cash flow from its home building operations in fiscal 2023 versus fiscal 2022. “You know, we saw our inventory step down slightly this quarter,” he said. “We will be increasing our starts pace as we move into the spring and then adjusting that to what we see in market demand. So, we may not continue to see the same pace of cash generation as we did in our first quarter, but we do still expect to see robust cash.”

Land Update
D.R. Horton’s home building lot position at the end of the fiscal first quarter included 551,000 lots—25% owned and 75% controlled through purchase contracts. According to executive vice president and co-chief operating officer Mike Murray, 32% of the builder’s total owned lots are finished and 53% of controlled lots are finished or will be finished when purchased. The builder’s first quarter investment in land, lots, and development totaled $1.7 billion, down 21% from the prior year but up 16% compared with the previous quarter.

Rental Operations
The company’s rental operations generated $328 million of revenue during the first quarter from the sale of 294 single-family rental homes and 300 multifamily units.

“We expect our rental operations to generate significant increases in both revenues and profits in fiscal 2023 as our platform matures and expands across more markets,” Murray said. “For the second quarter, we currently expect no multifamily rental sales and to close fewer single-family rental homes than in the first quarter.”