Strong buyer demand in the second quarter and the ongoing shortage of existing-housing inventory contributed to a strong quarterly performance for Meritage Homes, No. 5 on the 2023 Builder 100. The home builder’s spec strategy helped drive a nearly 90% backlog conversion and record second-quarter home closings and home closing revenue.
“Home closings were 3,490 this quarter, 8% greater than [the] prior year, highlighting our effort to improve cycle times,” said Meritage Homes CEO Phillippe Lord. “Nearly 1,100 homes were sold and delivered within the quarter from our available inventory of completed and near-completed homes.”
The shortage of resale homes, favorable demographic trends, and greater buyer acclimation to higher rates translated to quarterly sales per community of 3.9 net sales per month, close to Meritage Homes’ absorption target of 4 net sales per month. The positive conditions helped the home builder record a second quarter home closing revenue of $1.5 billion and profits per share of $5.02, both above projections from market analysts. The 10% year-over-year increase in home closing revenue resulted from 8% higher home closing volume and a 1% increase in the average sales price on closings.
“Given the healthy demand environment, our second quarter 2023 sales orders totaled 3,340 homes, which was 11% lower year over year. This decline resulted from the pull-forward of sales in the prior year, as we were one of the first builders at that time to offer expansive rate locks,” Lord said. “In the second quarter of 2022, Meritage was one of only two builders with positive year-over-year sales order growth.”
Entry-level buyers represented 85% of second quarter 2023 sales orders, with an average sales price of $442,000, down 8% compared with the second quarter of 2022. Meritage Homes ended the quarter with 291 active communities, 5% higher sequentially but 4% lower on a year-over-year basis. The builder’s cancellation rate of 11.5% in the quarter was a sequential improvement from 15.1% in the first quarter.
Meritage Homes started 4,096 spec homes in the second quarter, up from 2,462 in the first quarter but slightly below the 5,019 spec homes started in the fourth quarter of 2022. The home builder’s 15.4 spec homes per community was higher on a sequential and a year-over-year basis.
“During the quarter, we invested in growth, spending $409 million on land, acquisition, and development,” Lord said. “Approximately 2,800 net new lots were secured, more than doubling year over year, bringing our total lot supply to nearly 60,000 at June 30, 2023.”