Latest news with #PulteGroup
Fast Company
an hour ago
- Business
- Fast Company
Spreading housing market weakness sees $23 billion builder offer $50K incentives per sale
Want more housing market stories from Lance Lambert's ResiClub in your inbox? Subscribe to the ResiClub newsletter. In a 'normal' housing market environment, giant homebuilder PulteGroup —which is worth $23 billion—spends $18,000 to $21,000 on incentives on a $600,000 home sale. But with affordability strained and housing market softness spreading, the homebuilding giant is now shelling out closer to $52,200 per sale of a home of that value. 'Incentives for the second quarter were 8.7% of gross sales price, which is up from 6.3% last year, and on a sequential basis [quarter-over-quarter] up from 8.0%,' Jim Ossowski, CFO of PulteGroup, said during the builder's July 22 earnings call. Ever since mortgage rates spiked in mid-2022, which followed a historic run-up in U.S. home prices during the Pandemic Housing Boom, U.S. housing affordability has been strained. In housing markets where that affordability strain has manifested into spiked active inventory/months of supply and soft/falling home prices, giant homebuilders have leaned into doing bigger incentives, in particular, mortgage rate buydowns to pull in priced-out homebuyers and keep sales going. Of course, given the widespread housing market softening —most acute over the past year in parts of the West, Southwest, and Southeast—many homebuilders, including PulteGroup, have further increased their incentive spending to prevent a deeper pullback in home sales. 'We have responded to these conditions by adjusting [net] sales prices where necessary and focusing sales incentives on closing cost incentives, especially mortgage interest rate buydowns,' wrote PulteGroup in its earnings report published on July 22. That strategy has led to some additional builder gross-profit compression. PulteGroup's gross margin in Q2 2025 still came in at 27.0%. While that's down from the cycle high of 31.3% at the end of the Pandemic Housing Boom in Q2 2022, it remains above pre-pandemic levels seen in Q2 2018 (24.0%) and Q2 2019 (23.1%). (Some builders, like Lennar, have seen greater margin compression.) Are bigger incentives essentially falling home prices? Sometimes, yes. Sometimes, no. In some cases, increased incentive spending is effectively a price cut—just delivered in a less visible way. But not always. Since 2022, part of the rise in incentive spending in some markets has come from homebuilders increasing base home prices and then using some of that additional revenue to fund incentives. That said, based on PulteGroup's own commentary and the visible margin compression, it's clear that in at least some markets, its increased incentive spending is functioning as a net effective price cut. Instead of bigger incentives, why don't homebuilders like PulteGroup just do bigger outright home price cuts? Some homebuilders prefer offering larger incentives rather than outright price cuts to protect community comps. Outright price cuts can sometimes complicate future sales and upset homebuyers currently in the backlog. Another reason more homebuilders are leaning into bigger incentives is because large builders claim there's currently arbitrage in financial markets, where every $1 spent on a mortgage rate buydown delivers a greater monthly payment reduction for the buyer than a $1 home price cut. 'The focus still has been on rates and rate buydowns [rather than outright price cuts] and keeping consistency of that. And if we see a little weakness in a market or buy community, we may adjust further down, but [it's] still more advantageous to the buyer and the cost is less to increase the rate buy down than to cut the price,' D.R. Horton CEO Paul Romanowski told investors in April. Why does $1 spent on mortgage rate buydowns by builders create more payment savings right now than a $1 price cut? The answer is a little wonky. Here's the in-depth breakdown by housing analyst Kevin Erdmann—who is the author of the Erdmann Housing Tracker. As Erdmann explains to ResiClub: 'One reason that mortgage rates are higher than treasuries is that they have prepayment risk. If interest rates go up, the investors are stuck with fixed income that is lower than the new market rate. If interest rates go down, the borrowers refinance and the investors don't get the extra income from the higher fixed rates. So they charge an extra spread for prepayment risk. When short term rates are higher than, like they are now, the prepayment spread is higher because they expect mortgage rates to drop at some point in the future and the borrowers to refinance. If the builders arrange the terms so that the buyers are paying [a] 4% or 5% [mortgage rate] out of the gate, they [the borrower] aren't going to prepay [because they're less likely to refi] and so the prepayment spread is very low. From the borrowers perspective, the rate buydown only pays off slowly over time as you make the payments based on the low rate. They are incentivized not to refinance, sell the home, or pay the loan off early, so the expected duration of the mortgages is much longer. The builder and borrower can pocket the gains from the lower prepayment spread.' What risks do builder buydowns pose to homebuyers? While mortgage rate buydowns can offer meaningful monthly payment relief, they could also come with trade-offs. If a buyer accepts a builder buydown instead of negotiating a lower sale price, they may be locking in a deal (depending on the terms) that only pays off if mortgage rates stay elevated. Should rates fall soon after closing, that buyer may find themselves unable to benefit fully from refinancing. In that scenario, a lower sale price or another form of incentive might have offered more long-term value. Another risk is overpaying for the buydown. If a buyer stretches their budget or accepts a higher purchase price to secure the incentive, they could be more vulnerable to ending up underwater—owing more than the home is worth—if local home prices decline and they need to sell within a few years. Speaking to analysts last month, KB Home—which tends to favor direct price reductions over incentives when affordability adjustments are needed—indeed warned that some buyers opting for competitors' rate buydown deals may be overpaying for new homes. If those buyers need to sell soon, they could struggle to recoup the inflated base price tied to the incentive-heavy purchase. 'I believe that there are customers [of other homebuilders] that are overpaying for the home to effectively get an incentive. So they're tied into this higher price that they're gonna be stuck with forever until they sell that home. They may potentially be upside down when they try to sell that home versus a clean, simple, transparent way of selling—the value of what we offer,' KB Home COO Rob McGibney said on the company's June earnings call. Builder buydowns have lost a little of their magic lately Over the past year, many public homebuilders have seen mortgage rate buydowns lose some of their magic—at least compared to early 2023, when buydowns played a key role in firming up new construction sales. 'I think the commentary that you've heard from us is that there's actually inelasticity in, you know, pricing. And that more incentives don't necessarily translate into incremental volume. So we're trying to get incentives, you know, to the level where we get the appropriate level of volume. But pouring more incentives on top of that doesn't necessarily translate into the incremental volume that would justify those incentives. So, you know, that's why we've tried to continue to maintain some discipline around what we're doing on the incentive load,' Ryan Marshall, CEO of PulteGroup, said during the builder's July 22 earnings call. Marshall added: 'We think the opportunity is to bring incentives lower over time. We're clearly not there right now, but, you know, I would long for the days of, you know, more normal incentive loads of 3.0% to 3.5%.'
Yahoo
4 days ago
- Business
- Yahoo
Homebuilding sector playbook: 4 top stock picks
Wedbush Securities managing director of equity research Jay McCanless joins Market Domination with Josh Lipton and Prairie Operating Company executive vice president of market strategy Lou Basenese to explain to investors how to play the homebuilding sector, highlighting stock picks like PulteGroup (PHM), Taylor Morrison (TMHC), Tri Pointe (TPH), and M/I Homes (MHO), while cautioning against names like DR Horton (DHI) and LGI Homes (LGIH). To watch more expert insights and analysis on the latest market action, check out more Market Domination here. We're taking a look at the names of the home builder space, companies including DR Horton and PulteGroup reporting earnings on Tuesday, surprising analysts with solid earnings beats. We're navigating how to play the home builder sector with the Yahoo Finance playbook, and joining me now is Jay McCanless, Managing Director of Equity Research at Wedbush Securities. Jay, always good to see you, sir. So we did have a lot of a lot of news, a lot of data on that housing sector, Jay. We had earnings, we had new home sales, existing home sales, you, of course, Jay, know the home builder space so well. Maybe start broadly, Jay, high level. You look at the home builders as a sector, which you've covered a long time, you know, are you cautious, Jay? Are you constructive? How are you thinking about it? Yep, and thanks for having me on. So I'd say on the builders that get most of their business from from move up, these are people are selling a home to buy a new home. We're still constructive on those names. I would put Pulte in that group, as well as Taylor Morrison, Tri Pointe, and MHO, MI Homes. But we're a little more conservative, cautious on the entry level sellers with names like DR Horton, as well as LGIA, and some of the other names there. And I think it all comes down to confidence, you know. Every builder this week talked about how the consumer, especially the low-end consumer, is just not very confident about their financial situation and what's going on with tariffs, etc. So until we see some improvement there and or some improvement in mortgage rates, which have basically been stuck at about 7% for for over a year now, it's hard to see how things are going to get better on the low end. Given the uncertainty there, Jay, you're kind of mentioning about the backdrop, are builders changing at all what they're building, Jay? Are they sort of adjusting in terms of, you know, size and price? Absolutely. So what we've seen is a couple of things: The builders have dialed back on their housing starts until the consumer, I think I think, feels a little more engaged, more ready to buy a home. But the other thing the builders have done where they can is bring the square footages down. That's the easiest way to solve for affordability is you know, take the bonus room off, do something like that, one less bathroom. But I think at some point, we need we need to get some help on rates because I think the the builders, and especially some of the entry level names, Horton, Lennar, they've done about all they can do on shrinking the shrinking the envelope. At this point, it's again, need some rate help or or need some help on the income side for consumers to get a little more income to to be able to to afford these homes. Lou, I want to bring you here as well. Jay talked about rate help. I'm just looking at the 30-year fixed here, Lou, mortgage news daily. We're still at 6.81%. Yeah, I mean, I look at the the data here, and Jay, I'm curious your thoughts here. I look at it for existing home sales, and you see those mortgage rates once they jumped above 5%, we just shifted into reverse and now neutral with those rates pinned up there, even new home sales. So you you talked about a kind of a 911 for rate help. How much help do you think 25 basis points lends to the to the to the sector? Is it need to be more like 50 to 100 before you really see the impact, and how quickly could it help impact the the the progress in the sector? Yeah, sure. So what the builders have told us is they are buying down mortgage rates generally to somewhere in they call it 5 and a quarter to 5 and three quarters on a 30-year mortgage. So the the faster we can get the actual base rate down to that level, that's when it helps. But, you know, if we were to go to low sixes, high fives, again, I think that could help. But yeah, the 25 basis points we've seen versus last year, it's certainly heading the right way, but but we would like to see more. I think the other thing that builders have been doing is is not only doing rate buy-downs to make the homes more affordable, but they're trying to do things like adding some closing cost assistance, where where people are eligible for it, helping them apply for down payment assistance. There are multiple organizations that provide that now. So the the the builders doing everything they can without being able to move the rates, of course, beyond doing the buy-downs. But yeah, we we'd love to see something more like a five handle instead of the six handle where we are. Jay, what what is investor sentiment around the space and sector right now versus, you know, six months ago, 12 months ago? I'd say it's been surprisingly positive. We had a lot of inbounds ahead of earning season. You know, you saw Horton have a very sharp upward move, I think, 17% on Tuesday. You know, people understand that there's a lack of housing in this country. They understand that the demographics and the population tailwinds are still there. It's just the consumer doesn't feel as confident this year as they did last year. So I think investors are kind of being picky and choosy about what what they want to own right now. But I think again, they realize the underlying demand trends are still pretty strong for the group. So it's just, when's the right time to get in, right? So we we think for for the move up names now is a good time. And then when we get to later on in the fall and people start to think about spring '26, then maybe some of these entry level names will will look a little more attractive then. Jay, just I'm curious, final question here. Given Trump's immigration policies, Jay, what, if anything, have you heard from the home builders about any kind of material impact to labor? So I'll I'll I'll add the tariffs onto that as well. The tariff impact has been much less, I think, than the builders expected. Some of the builders had had built in a little conservatism into their guidance, and they've rolled that off now. In terms of of ICE affecting ICE raids affecting the the ability to get homes built, it really hasn't panned out that way. I think if anything, the builders have talked about excess availability of labor, which is helping them get get better rates to get the homes built, and build them a little more quickly than than they could have a year ago and especially two years ago. Jay, always great to have you on the show. Thanks so much for joining us. Thank you.
Forbes
4 days ago
- Business
- Forbes
How To Capitalize On Rise To New Highs
So much for the Liberation Day selloff! Markets are rising to new highs – and our MoneyShow experts have several ideas on how you can capitalize. Here are three. Mike Larson What about housing? It's a question I used to get a LOT. After all, I closely analyzed and wrote about the mortgage and real estate industries for years. But even though I haven't heard it much from friends, family members, colleagues, readers, and conference attendees, I have heard a few people talk about housing STOCKS and ETFs as value/turnaround plays. Which brings me to today's pair of MoneyShow Charts of the Day. First up is the year-over-year change in the (yes it's a mouthful!) S&P CoreLogic Case-Shiller US Home Price Index. You can see that after booming during Covid and the year or two afterward, house price appreciation collapsed. Then prices started falling. The S&P Homebuilders ETF (XHB) Price growth resumed in late 2003, accelerated into 2024, but has been easing back ever since. That brings me to my next chart, which shows the SPDR S&P Homebuilders ETF (XHB). The $1.5 billion ETF owns shares of 35 home builders, building products companies, home improvement retailers, and home furnishings firms. Sample names include PulteGroup Inc. (PHM), TopBuild Corp. (BLD), Lennox International Inc. (LII), and Toll Brothers Inc. (TOL). I used a weekly timeframe and am showing a half-decade of trading. Energy Transfer LP (ET) You can see that the XHB fared poorly in late-2023, rallied throughout 2024, then slid lower into April – just like the broad averages. But even as the lagging house price data hasn't turned up, XHB held support at the 200-week simple moving average, then started rallying. It's now challenging overhead resistance at the 50-week SMA. RSI is confirming the rebound. I wouldn't say housing stocks are out of the proverbial woods. But I'd watch this level, see if they can punch through that resistance, and if so? Maybe take a stab at XHB or related stocks as potential value plays. Roger Conrad Conrad's Utility Investor Midstream energy stocks are a great way for income-seeking investors to get a piece of the AI boom and accelerating demand for electricity. And few, if any, are as well positioned as Energy Transfer LP (ET). The diversified midstream company yields north of 7% and is raising its dividend on a quarterly basis at an annualized rate between 3% and 5%. That dividend is also a tax-advantaged return of capital. Energy Transfer is coming off a solid Q1 in which its distributable cash flow covered its payout by better than a 2-to-1 margin and it covered capital spending with operating cash flow. Overall interstate natural gas transportation volumes hit a new record. Crude oil throughput expanded by 10%, NGL transportation 4%, NGLs/refined products 4%, NGL exports 5%, and midstream gathered volumes 2%. Verizon That growth is being driven in large part by low-cost acquisitions over the past few years, and more recently by using the stock of its Sunoco LP (SUN) affiliate. Energy Transfer's EBITDA from Sunoco grew by 89.3% in Q1. It will take another big jump when Sunoco closes the $9.1 billion acquisition of Canadian fuels distributor Parkland Fuels (PKIUF) in second half of 2025. Energy Transfer is a player in the global LNG trade, with its Lake Charles LNG export facility almost fully contracted and set to start up later in the decade. But management is talking more and more about its opportunity to ship gas to data centers, especially in Texas. The company has a long-term agreement to supply the CrowdBurst facilities in central Texas. It has also entered the generation business, building a fleet of eight 10 megawatt capacity natural gas-powered facilities in Texas. Renewable energy — particularly solar plus storage — is currently Big Tech's favored way to feed its electricity appetite. Facilities can be deployed at scale within 12 to 18 months of the planning stage. And the cost is a fraction of other sources, with or without tax credits. When you build renewables at scale, however, you've got to have natural gas. And adding meaningful, new nuclear capacity is a decade away at best. That means Big Tech is going to need a lot more gas. And Energy Transfer is well positioned to transport it to them. Steve Strazza AllStarCharts Earnings season continues to deliver surprises - both good and bad. But the market rewarded a telecom giant for another solid quarter while punishing one of the most well-known restaurant chains for falling short yet again. Verizon Communications Inc. (VZ) had a +2.69 reaction score after reporting a double beat. It's a reminder that even in a generally positive earnings backdrop, the reaction often depends more on sentiment and expectations than the raw numbers. VZ reported revenues of $34.5 billion, versus the expected $33.74 billion, and earnings per share of $1.22, versus the expected $1.19. VZ has now been rewarded for three consecutive earnings reports, rallying 4% after this one. Here's why: Technically speaking, the stock is a hot mess. However, the fundamentals are trending in the right direction. With a dividend yield exceeding 6%, we believe this presents an attractive opportunity for income-seeking investors. The price is in the process of resolving a massive bearish-to-bullish reversal pattern, and the VWAP anchored to the 2019 high is our line in the sand. If and when VZ reclaims $46, the path of least resistance will shift from sideways to higher.
Business Times
4 days ago
- Business
- Business Times
US new-home sales remain tepid on affordability constraints
[WASHINGTON] Sales of new homes in the US remained weak in June as builders' heavier use of sales incentives failed to motivate buyers put off by high costs. Contract signings on new single-family homes increased 0.6 per cent to an annualised rate of 627,000 last month, according to government data released on Thursday (24 Jul). That fell short of the 650,000 median estimate in a Bloomberg survey of economists. June's results show US homebuilders are struggling to offset an ugly mix of high prices and borrowing costs by offering incentives and subsidising customers' mortgage rates, which risk eroding profit margins. This week, Atlanta-based PulteGroup posted better-than-expected earnings, despite reporting a slowdown in orders. Sales incentives have grown to 8.7 per cent of its houses' gross sale price, more than double a 'normal' incentive load, executives said on an earnings call. 'I long for the days of more normal incentive loads of 3 per cent to 3.5 per cent,' chief executive officer Ryan Marshall said on the earnings call. 'Hopefully as we get out into kind of future years, that will become possible again.' An industry survey showed 37 per cent of homebuilders reporting cutting prices in June, and climbed even higher in July to a record in monthly data back to 2022. That poll also revealed weak trends in traffic of prospective buyers amid affordability constraints, which similarly restrained sales of previously owned homes last month. A NEWSLETTER FOR YOU Tuesday, 12 pm Property Insights Get an exclusive analysis of real estate and property news in Singapore and beyond. Sign Up Sign Up 'In line with yesterday's soft existing home sales figure, these numbers underscore that housing demand has downshifted in recent months,' Stephen Stanley, chief economist at Santander US Capital Markets, said in a note. 'Barring a steep fall in mortgage rates, which seems unlikely, there is little reason to expect a quick revival.' Thursday's government report showed the supply of new homes for sale in June increased to 511,000, still the highest level since 2007. In recent months, a growing inventory has caused many builders to pull back on groundbreaking, with new single-family construction falling last month to the lowest level in a year. The supply of completed homes for sale edged up in June to the highest since 2009. The median sales price of a new home decreased 2.9 per cent from a year ago to US$401,800 – marking the fifth annual decline in the last six months. While new-home prices have softened the last couple years, they remain more than 23 per cent higher than the early months of the pandemic. Selling prices are 'still too much for most Americans to afford as long as mortgage rates stay near 7 per cent,' Heather Long, chief economist at Navy Federal Credit Union, said in a note. 'The encouraging news is there are more new homes for sale this summer than last year, and prices are inching down a bit. But it will take a lot more relief to see the real estate market unfreeze.' Sales in the South, the biggest US homebuilding region, increased 5.1 per cent last month after falling 15 per cent a month earlier. Purchases also rose in the Midwest, while contract signings in the West dropped to the slowest pace in seven months. New-home sales are seen as a more timely measurement than purchases of existing homes, which are calculated when contracts close. However, the data are volatile. The government report showed 90 per cent confidence that the change in new-home sales ranged from a 12.7 per cent decline to a 13.9 per cent gain. Residential investment is expected to be a drag on overall economic activity, when the government publishes its initial estimate of second-quarter gross domestic product on Wednesday. Also that day, the National Association of Realtors will release a report on June contract signings in the home resale market. BLOOMBERG
Yahoo
6 days ago
- Business
- Yahoo
PulteGroup (PHM) Snaps 3-Day Losses on Buy Reco, Higher Price Target
We recently published . PulteGroup, Inc. (NYSE:PHM) is one of Tuesday's top performers. PulteGroup snapped a three-day losing streak on Tuesday, jumping 11.52 percent to close at $121.17 apiece as investors took heart from an investment firm's rating and price target upgrade for its stock. In a market note, Seaport Global Securities raised its price target for PulteGroup, Inc. (NYSE:PHM) to $155, marking a 28-percent upside from its latest closing price. The brokerage also gave a 'buy' recommendation for its stock. The upgrade was based on PulteGroup, Inc.'s (NYSE:PHM) second quarter guidance, which affirmed a more favorable investment case for the company. In the second quarter of the year, PulteGroup, Inc. (NYSE:PHM) dropped its net income by 24.8 percent to $608 million from $809 million in the same period last year. Construction workers laying bricks during the residential development of multiple lots. Revenues also dipped by 4 percent to $4.4 billion from $4.59 billion year-on-year. Home sale gross margin stood at 27 percent, lower than the 29.9 percent last year, but was within the company's previously provided guidance. While we acknowledge the potential of PHM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the . Sign in to access your portfolio
