America’s largest builder says rising housing inventory is starting to impact sales in Florida and Texas

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Speaking on D.R. Horton’s earnings call last week, CEO Paul Romanowski was asked about geographic housing demand trends and if rising inventory in Florida and Texas was impacting the sales of America’s largest homebuilder.

“Some of the [recent] buildup we’ve seen in inventory has had some impact on [our] sales when you look at portions of the Florida market and as well isolated to some of the Texas markets where they saw a significant run-up in valuations,” Romanowski responded. “We’ve seen some moderation there. But generally, as we enter into the spring, [we] have been pleased with what we’ve seen in these first few weeks in our sales offices across our footprint.”

The regional variation described by D.R. Horton is supported by the data.

According to John Burns Research and Consulting’s Burns Homebuilder Survey for December, which was published this month, homebuilders in Florida and Texas are spending the most on sales incentives, while homebuilders in the Northeast and Southern California are spending the least.

Broadly speaking, homebuilders have been more willing in recent years to compress margins—which reached historic levels during the pandemic housing boom—and allocate them toward incentives or affordability adjustments to “meet the market” when and where needed, rather than making significant cutbacks in production.

Indeed, just last month Lennar CEO Stuart Miller told analysts: “We’re going to adjust to market [when and where needed]. We’re going to maintain [sales] volume.”

In Florida, homebuilders are spending 10% of the sales price on incentives to help move unsold inventory. On a $500,000 home, that would come out to spending $50,000 on incentives.

In the Northeast, homebuilders are spending 3% of the sales price on incentives for unsold inventory. On a $500,000 home, that would come out to spending $15,000 on incentives.

Often those new construction incentives are baked into the price; however, if a particular community or market shifts quickly, and a builder needs to rapidly increase incentives to keep selling homes, it’s essentially a net effective home price cut.

“And although both new and existing home inventories have increased from historically low levels, the supply of homes at affordable price points is generally still limited,” Romanowski told analysts. “To help spur demand and address affordability, we are continuing to use incentives such as mortgage rate buy-downs, and we have continued to start and sell [more] of our smaller floor plans.”

Many regional pockets of the country, where homebuilders are deploying more incentives to move product, are also the very places where active inventory for sale has jumped back to or above pre-pandemic levels. You can find more information in ResiClub's latest inventory analysis and home price analysis for more than 800 metros and 3,000 counties.

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