Despite challenging macroeconomic conditions, including growing consumer and economic uncertainty, PulteGroup says its diversified operating platform allowed it to successfully navigate the fiscal first quarter.
The builder generated home sales revenue of $3.7 billion in the first quarter, a decrease of 2% from the prior year, reflecting a 6% increase in average sales price to $570,000 and a 7% decrease in closing volume to 6,583.
“Our national footprint and strategy of serving all buyer groups with a targeted offering of spec and built-to-order homes, along with our broader capacity to use price and/or pace to drive returns give our operators more flexibility when operating in periods of economic transition,” Ryan Marshall, president and CEO, said during the builder’s first quarter earnings call.
Consumer Behavior and Demand Patterns
Marshall said buyers responded favorably to interest rate declines as the first quarter progressed. However, many buyers—particularly entry-level buyers—remain caught between the desire for homeownership and the affordability challenges defining the current market.
“Within the quarter, we also saw the level of home buying activity respond positively to the 30-year fixed mortgage rate dropping below 7%, which allowed roughly 20% of our divisions to increase price within our communities,” Marshall said. “Consistent with the relative strength we have seen with move-up and active adult buyers over the past few quarters, we saw the average spend on options and lot premiums per home climb to $110,00 in Q1, up from $102,000 and $107,000 in the first and fourth quarters, respectively, last year.”
In the quarter, ended March 31, net new orders totaled 7,765 homes, down from 8,379 homes a year ago. The company said the decrease in net new orders was driven primarily by lower gross orders due to ongoing affordability challenges and economic uncertainty. Marshall said through the first three weeks of April, PulteGroup has seen consumers of all buyer groups impacted by changing macroeconomic conditions. While move-up and active adult buyers are typically less sensitive to interest rates than entry-level buyers, stock market and financial concerns are beginning to impact these buyers.
Portfolio Mix and Incentives
Due to the financial strength of move-up and active adult buyers, Marshall said PulteGroup has aligned 60% of its portfolio to serve these buyers.
“However, the quarter saw the consumer continue to face affordability challenges. From the high absolute selling prices of today’s homes to the resulting high mortgage payments, consumers are struggling with affordability challenges when it comes to purchasing a home,” Marshall said. “These headwinds have only been exacerbated recently by growing concerns about the potential for a slowing economy.”
PulteGroup continues to deploy a variety of tools to help solve for affordability, from new product designs and more efficient floorplans to mortgage rate buydowns.
“We leaned a little more heavily on incentives in the first quarter as we executed on our plan to reduce excess spec inventory by actively selling our in process and finished spec inventory. We also adjusted our starts pace to better match current demand,” Marshall said.
As a result of the focus, PulteGroup lowered specs to 47% of production in the quarter from 53% in the fourth quarter, more in line with the builder’s long-term goal of 40% to 45% of production.
Tariffs and Housing Costs
While building costs remained effectively flat on a year-over-year basis in the first quarter, Marshall acknowledge that tariffs have the potential to add thousands of dollars to the cost of construction moving forward. PulteGroup is projecting an impact of approximately 1% of average sales price in 2025, with most of the impact occurring in the fourth quarter. The impacts are expected to occur due to changes in several categories, including plumbing, HVAC, flooring, and electrical components.
“As tariffs have been introduced or proposed, our cycle-tested procurement teams have developed and began implementing response strategies,” Marshall said. “We’ve got good relationships with our suppliers. We want it to be a win-win, but we think we offer value in the volume and predictability.”
Marshall said while there may be some disruptions to the supply chain due to tariffs as well as cost impacts, PulteGroup is not anticipating disruptions similar to the early COVID period.
“I think this will be potentially an easier obstacle course to navigate than the COVID supply chain disruptions,” Marshall said. “But I do think the industry needs to be prepared. Not just the industry, the world needs to be prepared for some disruptions as a result of things that are going to be tariff-induced.”
