D.R. Horton, the largest homebuilder in the U.S., has reported a sharp decline in the housing market, with buyers quickly leaving the sector. This drop comes as the economy already faces challenges from higher interest rates and inflation, further affecting the nation’s financial situation.
The decline is clear in D.R. Horton’s Q4 results. Buyers canceled almost a third of their deals, a jump from 19% last year. Additionally, new orders have fallen by 15% compared to the previous year. In total, the value of the 13,572 homes sold this year has dropped by 10%.
D.R. Horton has had to abandon land deals that no longer meet their standards, resulting in a $34 million write-off for deposits and related expenses. The company is also providing more incentives to sellers to close transactions.
Mortgage rates have greatly impacted the housing market’s decline. The Federal Reserve has raised rates sharply to fight inflation. The average 30-year fixed-rate mortgage now has an interest rate of about 7%, more than double what it was a year ago. This increase has led to a drop in mortgage demand, which is now at a 22-year low.
Homebuilders like D.R. Horton and PulteGroup have reported order cancellations and missed earnings and revenue targets due to the higher mortgage rates, inflation, and economic uncertainty.
The housing market’s decline could affect other industries and the overall economy. Home improvement stores, for example, such as The Home Depot, may experience slower sales as new and existing home sales fall. However, it may take another quarter or two for these effects to be fully seen.
While housing prices will still rise, the pace will be slower due to decreased demand. Despite higher interest rates, average home buyers seeking a place to live may still find buying a home beneficial. They can secure an interest rate before it rises further and refinance when rates drop again. Ultimately, whether to buy a home depends on each person’s financial situation.
