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By Jennifer Yousfi
D.R. Horton Inc. (DHI) reported a $1.3 billion fiscal second quarter loss yesterday (Tuesday), and slashed its dividend by half as the United States continues to suffer through the worst housing recession in a generation.
The largest U.S. homebuilder has been hard hit by the troubles in the domestic housing market and was forced to write down $834.1 million of land and inventory as home prices continue to decline. The resulting $1.3 billion loss, or $4.14 per share far exceeded analyst expectations of a loss of 64 cents per share, according to Bloomberg estimates.
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The board declared a quarterly cash dividend of 7.5 cents per share, down from 15 cents per share in the prior quarter.
"Although market conditions in the homebuilding industry remain challenging, we continue to focus on reducing inventory and generating cash flow from operations," Chairman of the Board Donald R. Horton said in a statement.
The spring season is typically one of the busiest for home sellers, but not this year. Home prices continue to fall, but the lower prices have yet to bolster demand. Meanwhile, banks scarred by the subprime crisis remain wary of lending as they look to maintain comfortable levels of cash reserves to prove their own financial viability.
The S&P/Case-Shiller home-price index dropped 12.7% in February from a year ago, the largest decline since the index's inception in 2001. Inventories reached a 27-year high with an estimated 11 months supply, or 900,000 empty homes, currently on the market.
Despite the U.S. Federal Reserve's rate-slashing campaign and continued efforts to boost liquidity in the credit markets, lending standards remain tight. Banks scarred by the subprime crisis remain wary of lending as they look to maintain comfortable levels of cash reserves to prove their own financial viability.
Homeowners facing higher mortgage-rate resets are therefore unable to refinance, and as prices continue to decline the value their homes are no longer high enough to cover their mortgage balances. Unable to meet the higher payments, more homes are going into foreclosure.
D.R. Horton is "most concerned about the level of foreclosures entering the market and I think to the extent that those are significantly greater than what they are currently, then that's going to negatively impact our pricing moving forward," Chief Executive Officer Donald Tomnitz said on a conference call, Bloomberg News reported.
, real estate data firm RealtyTrac Inc. recently reported.
The housing market is likely to get worse before it gets better, which is bad news for Horton and other homebuilders. A fresh round of mortgage-rate resets will hit in May and June, meaning another round of foreclosures for overextended homeowners is already in the works.
"What we're really looking at is ongoing fallout from people overextending themselves to buy homes they couldn't afford and using highly toxic loan products to get into the houses in the first place," Rick Sharga, RealtyTrac's vice president of marketing, told The Associated Press. "We're going to see quite possibly a record amount of foreclosure activity in the third or fourth quarter."
Despite the weak results and dismal outlook for the housing market, Horton shares gained 88 cents yesterday, a 5.51% increase, to close at $16.85.
Over the past 52 weeks, the shares have traded in a range from $9.78 to $24.49 and are up 28% year-to-date.
News and Related Story Links:
- Bloomberg News:
D.R. Horton Reports Record Loss as Slump Worsens
Homebuilders: Waiting for the Thaw
- Money Morning:
Housing Slump Continues
- Money Morning: