Home buyer demand improved during the fiscal third quarter for PulteGroup as mortgage interest rates declined, contributing to year-over-year growth in home sales revenue and closings in the period.
President and CEO Ryan Marshall also highlighted that the PulteGroups’ balanced spec and build-to-order operating model contributed to positive results in the third quarter, ended Sept. 30.
According to EVP and chief financial officer Bob O’Shaughnessy, 58% of third quarter sales for PulteGroup were spec sales, demonstrating the continued importance of having inventory available to meet market demand. Demand and interest in spec homes is contributing to the continued importance of mortgage incentives for PulteGroup, O’Shaughnessy said.
“Buyer demand improved as interest rates declined in the quarter, but overall market dynamics remain competitive,” O’Shaughnessy said during the home builder’s quarterly earnings call. “We expect incentives to remain elevated for at least the remainder of the year.”
In the quarter, home sales revenues increased 12% year-over-year for PulteGroup to $4.3 billion. The home builder said the higher revenues were driven by a 12% increase in home closings to 7,924 in the quarter. PulteGroup’s average selling price of homes closed in the quarter was $548,000.
The company’s net new orders for the quarter were 7,031 homes consistent with net new orders of 7,065 homes in the third quarter of 2023. PulteGroup’s average monthly absorption pace in the quarter of 2.4 homes per community per month exceeded its historic third quarter pre-COVID average of 2.2 homes. Third quarter net new orders decreased 3% year-over-year for first-time buyers, increased 6% for move-up buyers, and decreased 5% for active adult buyers.
At the end of the quarter, PulteGroup’s backlog was 12,089 homes with a value of $7.7 billion, down from 13,547 homes with a value of $8.1 billion at the end of the third quarter of 2023. The builder stated approximately 7,800 homes in the quarter and ended the period with 17,096 homes under construction.
“Years of underbuilding has created a structural shortage of homes and correspondingly high home prices, so the Federal Reserve’s pivot to lowering interest rates provides a powerful tool in helping to address the affordability challenge faced by today’s home buyers,” said Marshall. “Given our strong third quarter and nine-month financial results, we are well positioned to deliver a record year of earnings for the company.”
PulteGroup’s strong results in the fiscal quarter outpaced analyst projects. The builder generated profit of $698 million, of $3.35 per share, beating the Zacks Consensus Estimate by $0.25 per share.
In the quarter, PulteGroup invested $1.4 billion in land acquisition and development, of which 56% was allocated for the development of existing land assets. The company ended the quarter with 235,000 lots owned or controlled, of which 56% were held via option. Marshall and O’Shaughnessy said PulteGroup is progressing toward its long-term goal of 70% optioned lots, which the builder hopes will enhance returns and mitigate market risk.
Impacts of Hurricanes Helene and Milton
PulteGroup took time on its earnings call to comment on the recent storms and their devastation in the Southeast. The company quickly mobilized following the storm to support impacted communities and employees, including utilizing a volunteer-led supply-led caravan delivering essential items like generators, fuel, water, and more to impacted divisions.
Marshall said PulteGroup’s communities in active construction and communities that were recently closed both performed well against the storms in Florida.
“The new construction standards, the quality that we build to, [and] the way the drainage systems are designed are a real testament to just how effective some of those standards are. We have very little damage in our active communities,” Marshall shared on the earnings call.
He said two of the biggest impacts of the hurricanes were the loss of time—both prior and following the storms—and power. With the widespread power outages in Tampa Bay and Southwest Florida, Marshall said priorities have been getting existing power grids back online, which could impact setting new electrical meters for homes that will deliver in Q4.
