D.R. Horton Inc. (DHI) is approaching the housing market with a bit of caution in its fiscal new year as mortgage rates remain high.
"As we look forward to the first quarter of fiscal 2024, we expect challenging market conditions to persist with continued uncertainty regarding mortgage rates, the capital markets, and general economic conditions that may significantly impact our business," Jessica Hansen, head of investor relations, said in prepared remarks on the earnings call Tuesday.
For the full year of fiscal 2024, the company’s forward guidance includes home closings to range from 86,000 to 89,000 homes. Yet, one Wall Street analyst noticed the pullback.
"FY24 closings guidance of up 4-7% is modestly below what we believe to have been the company’s longer-term target of up at least high single-digits (prior JPMe: +9%)," Michael Rehaut, an analyst with JPMorgan, wrote in a note to clients ahead of the earnings call.
In the call, Rehaut pointed that out, asking if the guidance was a function of recent rate moves.
"As we sit here in November, that's a realistic expectation for closing with the visibility that we have today, it's not necessarily that we've seen a big falloff in demand," Hansen said. "Obviously, our sales were up very strong and so it's more a function of the houses we have in inventory [and] our cycle times."
Read more: Mortgage rates at over 20-year high: Is 2023 a good time to buy a house?
The homebuilder is ready to pivot if buyers step up like they did last year despite higher rates, providing an upside surprise for much of 2023.
Read more: First-time homebuyer in 2023: What you need to know
"As we see the market unfold for the year, we will be able to accelerate starts to meet any increased demand," said COO Michael J. Murray on the call. "So positioning for conservatism in the year, but always are — have a desire to grow and to grow in that double-digit level."
Hansen’s comments came as the builder reported better-than-expected revenue and earnings for the last quarter of its fiscal year as seasonal demand for homes was supported by demographic trends despite elevated mortgage rates.
The lack of available homes for sale has fueled the need for newly built homes. New home sales increased 12.3% to a seasonally adjusted rate of 759,000 units last month from the revised August rate of 676,000, according to the Census Bureau.
The run-up in rates also effectively pushed a lot of people to stay in their homes, shrinking the number of transactions on the existing home side by 15.4% lower versus a year ago, per the National Association of Realtors.
Builders were savvy and adjusted to the higher mortgage rates by offering incentives to reduce the interest rate on their home loan.
Read more: Types of mortgage loans: Buying a house in 2023
In the fourth quarter, D.R. Horton closed 22,928 homes, with the average closing price of $382,900, up 1% sequentially, executives noted on the earnings call. Net sales orders increased 39% to 18,939 homes compared to the prior year quarter. The summer season often results in a boost in activity as families want to buy their next home before school starts.
D.R. Horton started 21,100 homes in the September quarter, down 8% from the June quarter. As a result, the homebuilder ended the year with 42,000 homes in inventory, down 9% from a year ago. Still, 27,000 homes remained unsold as of Sept. 30, and 7,000 of those homes were completed.
Under the current housing landscape, the builder expects to increase housing starts "gradually, quarter to quarter as we move throughout the year to position ourselves to deliver on the guidance that we've talked about and then obviously to also exit '24 position to grow into '25."
The big question, of course, remains how long interest rates will stay high. The Federal Reserve last week left interest rates unchanged, while keeping the possibility of future increases still on the table. Mortgage rates leveled off a bit on the heels of the Fed’s decision, but remain well above 7%.
"We expect to continue utilizing a higher level of incentives in fiscal 2024, particularly rate buydowns in the current interest rate environment," Murray said on the call. "Our sales volumes can be significantly affected by changes in mortgage rates and other economic factors. However, we will continue to start homes and maintain sufficient inventory to meet sales demand and aggregate market share."
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.