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Residential
Texas

D.R. Horton: Inflation, rates could mean smaller new homes

Texas-based builder looks at options for smaller footprints as interest rates and inflation rates rise

A photo illustration of smaller houses (iStock)
(iStock)

A major Central Texas builder is considering smaller homes in response to inflation and rising interest rates. Executives with Arlington-based D.R. Horton raised the possibility during an earnings call, the Austin Business Journal reported.

D.R. Horton had more new home sales than any other production builder in the Austin area in 2020, according to Austin Business Journal research. It’s also the area leader in new home starts.

To keep homes affordable for buyers and renters, the company could look at new developments with smaller home sizes than it typically has built, executives said during the April 25 call. They said that wouldn’t be a significant change, however.

If faced with a drop in demand due to increasing interest rates and other economic factors that could decrease their homes’ affordability, the company could adjust on the supply end. D.R. Horton’s Paul Romanowski said the company is committed to staying in the affordable range and targeting buyers looking for such homes. The firm’s Michael Murray said adjustments in home starts and sizes would be based on what’s happening in specific submarkets. The company plans to continue its strategy of aggregating market share through ups and downs of the larger economy, said another executive.

The company’s home sales revenue rose by 22 percent to $7.5 billion during the company’s fiscal second quarter, which ended March 31. Net income rose 59 percent.

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Despite demand remaining strong, according to the company, it slowed sales orders based on production capacity in its second quarter. It also added about two weeks to its delivery cycle this quarter.

D.R. Horton posted revenue of almost $223 million from its rental operations in its first quarter, up from $156 million in its first quarter, which ended December 31. It projects that its rental-property business will generate about $800 million this fiscal year.

D.R. Horton’s current projects include a 2,200-home master-planned development near Austin. It also recently paid cash for Nevada-based Vidler Water Resources, valued at about $291 million, to meet the water demands of the developments in many of its markets.

[ABJ] — Cindy Widner

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