Meritage Homes’ pivot to affordable, quick-turning move-in-ready homes paid dividends in the fiscal third quarter, with the home builder reporting a company-record backlog conversion rate and the highest third quarter closing volume in company history.
“Our rate buydown offerings in July and August and the pullback in mortgage rates in September all contributed to order volume that slightly outpaced traditional seasonality, aiding us to achieve orders totaling 3,512 homes this quarter with average monthly absorptions of 4.1,” executive chairman Steven Hilton said.
Meritage Homes’ third quarter order volume represented a 1% increase compared to the third quarter of 2023. Third quarter average sales price (ASP) on orders was $406,000, down 6% on a year-over-year basis due to a product and geographic mix shift as well as increased financing incentive costs. Entry-level homes represented 92% of third quarter sales, up from 88% in the third quarter of 2023. The builder generated a third quarter profit of $196.0 million, or $5.34 per share, down from $221.8 million, or $5.98 per share, a year ago.
Home closing revenue in the quarter was $1.6 billion, down 2% on a year-over-year basis. The decline was largely due to a 9% decrease in ASP on closings. Home closings increased 8% year-over-year to a third-quarter record 3,942. Entry-level homes accounted for 93% of third quarter home closings. The builder’s cancellation rate remained below historical levels at 10% in the third quarter, according to CEO Phillippe Lord.
“With nearly 45% of this quarter’s closings also sold this quarter, our backlog conversion rate was a company-record 145%,” Lord said.
The central region—which includes Texas—generated a monthly absorption pace of 4.6 in the third quarter. The region’s average backlog conversion has exceeded 125% in each of the past four quarters, according to Lord. The West region recorded the largest year-over-year increase in absorption pace, up to 4.2 per month from 3.6 in the third quarter of 2023. The East region posted a monthly absorption pace of 3.8.
Meritage anticipates the housing market will return to a mix between existing homes and new homes that reflects historic levels. The builder said some of its submarkets are already experiencing increased competition from resale inventory. However, the builder’s strategic shift, built around a 60-day closing guarantee and the concept of move-in-ready homes, is designed to be competitive against the resale market. As such, Lord said the builder believes it can continue to grow market share even as resale inventory re-enters the market.
Meritage Homes’ land acquisition and development spend in the third quarter totaled $659.4 million and the builder put nearly 7,800 net new lots under control. At the end of the period, approximately 74,800 lots were owned or controlled, an increase from 60,700 lots a year ago. The builder started approximately 3,800 homes in the third quarter, down on a year-over-year and sequential basis but in line with traditional seasonality.
