U.S. homebuilders such as Lennar (LEN), Toll Brothers (TOL) and DR Horton (DHI) are aggressively lowering prices as demand continues to weaken among potential buyers concerned about the economy.
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A survey from the U.S. National Association of Home Builders has found that companies are cutting prices at the fastest pace in three years as they seek to attract buyers. Builder confidence in July rose one point to 33 on the association’s benchmark index, a slight improvement but still extremely pessimistic. A reading below 50 is considered negative sentiment among home builders.
While U.S. President Donald Trump’s recently passed budget act provides some tax relief for home builders and small businesses, mortgage rates remain at elevated levels, keeping would be buyers on the sidelines and leading companies such as Lennar and DR Horton to slash prices. A total of 38% of builders said they cut prices in July, the highest level since the association began tracking the data in 2022.
Buying Down Mortgage Rates
Homebuilders across America have been buying down mortgage rates to help attract buyers and secure sales. That process has cut into the profit margins of many homebuilders, but not as much as the price cuts that are taking place.
“Single-family permits are down 6% on a year-to-date basis and builder traffic in the HMI is at a more than two-year low,” said Robert Dietz, the association’s chief economist, in a news release. Regionally, builder sentiment was strongest in the U.S. Northeast, where it rose one point, flat in the Midwest, and dropped further in the South and West.
Is DHI Stock a Buy?
The stock of DR Horton has a consensus Moderate Buy rating among 11 Wall Street analysts. That rating is based on five Buy, four Hold, and two Sell recommendations issued in the last three months. The average DHI price target of $143.90 implies 9.55% upside from current levels.
