Strong market fundamentals and resilient demand helped drive strong profitability and notable improvement in new orders in the third quarter for M.D.C. Holdings, the 11th-largest company on the 2023 BUILDER 100 list.
During the quarter, the home builder generated profits of $107.3 million, or $1.40 per share, beating analyst projections of profits of $1.18 per share. M.D.C. Holdings generated home sales revenues of $1.09 billion, down on a year-over-year basis.
Executive chairman Larry Mizel said the profitability and revenue results demonstrate the company’s ability to deliver solid financial results in the face of a high interest rate environment.
M.D.C. Holdings delivered 1,968 homes in the third quarter with an average selling price of $552,000, compared with 2,387 deliveries at an average selling price of $590,000 in the third quarter of 2022. Senior vice president and chief financial officer Robert Martin said the decrease in price can be attributed to an increase in incentive offerings, pricing adjustments, and a shift in the mix of closings. The home builder projects incentives will play a larger role on deliveries and closings in the fourth quarter.
The dollar value of net new orders increased 532% year over year to $965.5 million, and unit gross orders increased 42% to 2,227 in the third quarter. The average selling price of gross orders decreased 4% year over year to $560,000 from $583,000. Cancellations as a percentage of gross orders improved significantly, falling to 23.9% from 80.9% in the third quarter of 2022.
“Net new orders improved considerably from the prior-year period, thanks to a significant reduction in cancellations and our use of financing incentives that lessened the impact of higher mortgage rates for our buyers,” David Mandarich, president and CEO, said. “We continue to see motivated buyers in our markets, provided we can meet their affordability needs.”
M.D.C. Holdings generated a net absorption pace of 2.4 homes per community per month in the third quarter, and Mizel said the company continued to benefit from its strategic shift to more spec home products.
Mandarich said nearly 80% of the company’s sales in the third quarter were for spec homes. The company plans to maintain a healthy level of spec home production through the end of the calendar year to ensure sufficient inventory for the spring selling season.
“The lack of existing-home supply coupled with our ability to offer incentives have attracted more buyers to the new-home market and have resulted in market share gain for the publicly traded home builders,” Mizel said on the company’s earnings call. “We believe this dynamic will remain in place for the foreseeable future and have a number of tools at our disposal to drive traffic to our communities and address affordability concerns.”
The company ended the quarter with approximately 2,700 homes in backlog and an additional 2,681 homes completed or under construction.
Mizel said M.D.C. Holdings increased its land acquisition efforts to capitalize on solid economic tailwinds, including job creation, household formation, and limited resale inventory. The company spent $159 million on land acquisition in the third quarter and incurred $83 million in land development costs, both significant increases from the first half of 2023. The home builder ended the quarter with 22,353 lots controlled, down 24% on a year-over-year basis.
