What America’s Largest Homebuilder Sees

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What’s going on with US housing?

We’ve just had one of the best years in US housing history, but if you look at the shares of anything housing-related, they’ve plummeted.

DR Horton is the largest homebuilder in the United States and its shares have fallen 32% this year. It’s the same thing for everything related to housing. It all started when Treasury yields started to take off. The US 30-year fixed mortgage rate is 5.4% versus 3.2% at the start of the year.

US 30-year fixed

This is a clear case where the market sees problems, but is the demand strong enough to overcome them?

  • We haven’t seen any improvement in the supply chain
  • Orders were down 10% in the quarter but ‘it was our whole decision to slow production’
  • “We have seen and have continued to see very strong demand”
  • Our cycle times continued to lengthen. We added 2 weeks.
  • We didn’t want to create a backlog of buyers with an unhappy experience
  • At some point, prices and tariffs will impact demand
  • There is still a very strong demand for multi-family
  • The overall land market has followed the selling price of homes
  • We can adjust home builders to smaller builds if that’s what the market needs
  • I think the cycle will keep getting longer
  • Looks like there’s almost been a cultural shift
  • The demand is significantly higher than the houses that can be produced
  • In 2018 when rates went up we saw a rapid drop in demand we don’t see that this time

They said in the press release:

“Housing market conditions remain strong despite rising mortgage rates, as we continue to experience buyer demand outpacing our pace of supply. We are still selling homes later in the build cycle to better ensure home closing date certainty for our buyers, and we continue to work to stabilize and then reduce our build cycle times to historic standards. »

But they also lowered their estimate of homes closed this year to 88-90K from 90-92K.

Shares of the company rebounded pre-market and are currently trading roughly flat.

So while there is inflation

Inflation

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.
Read this termdemand keeps pace.

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