D.R. Horton ( DHI), the country's largest homebuilder by volume, said new home orders fell 39% in its latest quarter, as the residential market continues its rapid deterioration.The sharp order drop was disappointing since Horton was facing an easy comparison from a year ago, when orders declined 25% year over year. Sales in the quarter ended Sept. 30 totaled 6,374 units, or $1.3 billion. That was down from 10,430 units, or $2.5 billion, a year earlier. Horton's cancellation rate was 48%, reflecting the fact that homeowners continue to walk away from home contracts because of falling housing prices and reduced mortgage demand. Bank of America analyst Daniel Oppenheim had forecast a 5% sales unit drop in the quarter, since he expected Horton to be aggressively cutting prices to clear homes. In a note last week, Oppenheim pointed to the easy comparisons from a year ago as a reason why orders shouldn't fall too sharply. The question now becomes whether the big sales drop came even amid aggressive price cuts. If so, that's bad news for the homebuilding business, since it points to an even larger supply and demand imbalance than most analysts had been projecting. Orders came in lower across all of Horton's markets. California was among the worst, with a 58% plunge.
The high inventory of existing and new homes across the country made pricing very competitive, Donald R. Horton, the company's chairman, said in a statement. But Horton also pointed to generally weak demand. "We also experienced reduced mortgage availability due to tighter lending standards, and buyers continued to approach the home buying decision cautiously," he said. "We expect the housing environment to remain challenging." Horton said it continues to focus on reducing inventory, generating cash flow and cutting outstanding debt. The company said it generated $1 billion of operating cash flow for the recently ended fiscal year. Horton shares fell 2.4% to $13.25 in premarket trading.