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Earnings Results: Home buying demand picked up as new houses have become more affordable, PulteGroup says

Shares of PulteGroup Inc. soared to a one-year high Tuesday, after the home builder’s fourth-quarter results included big profit and revenue beats, as home buyers have responded well to the recent pullback in mortgage rates.

While 30-year fixed mortgage rates are still nearly double what they were a year ago, they have fallen to a four-month low at a time when home prices have also pulled back.

““Despite the higher rate environment dominating the national conversation, we saw buyer demand improve as the fourth-quarter progressed and can confirm this strength continued through the month of January.””

— PulteGroup Chief Executive Ryan Marshall, according to a FactSet transcript.

Marshall explained on the post-earnings conference call with analysts that while seasonal trends have been distorted over the past few years, increases in monthly sales as the fourth quarter progresses are “atypical.”

“In short, we are encouraged by the recent improvement in our new home sales,” Marshall said. “Based on feedback from our sales offices, buyers have been responding to the decline in mortgage rates.”

That said, Marshall was unsure whether the improved demand will continue. While new homes have become more affordable in recent months, there is still a lot of uncertainty over how demand will change if continued interest rate increases by the Federal Reserve start hurting the job market.

Given this uncertainty, the company plans to “dramatically” lower its land investment in 2023, to approximately $3.3 billion, compared with a $4.5 billion investment in land in 2022.

Pulte’s stock

soared 9.4% to $56.89, the highest close since Jan. 14, 2022. And the stock ran up 25.0% in January, which would be the biggest monthly gain since it soared 28.1% in July 2020.

The company reported before Tuesday’s opening bell fourth-quarter net income that rose to $882.2 million, or $3.85 a share, from $663.3 million, or $2.61 a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share of $3.63 beat the FactSet consensus of $2.93.

Revenue grew 18.6% to $5.17 billion, well above the FactSet consensus of $4.58 billion.

The increase in revenue resulted from a 3% rise in closings to 8,848 homes, which exceeded the FactSet consensus of 7,900, and a 17% jump in average sales price to $571,000, which topped expectations of $567,130.

For the first quarter, the company expects the average price of homes closed to be between $565,000 to $575,000. The midpoint of guidance is in line with fourth-quarter prices, while the FactSet consensus called for a drop to $551,810.

“As we sit here today, I am incrementally more optimistic about the year ahead, but as the expression goes, hope for the best but prepare for the worst,” CEO Marshall said.

Pulte’s stock has climbed 42.9% over the past three months, while the iShares U.S. Home Construction exchange-traded fund

has rallied 24.0%, and the S&P 500 index

has advanced 5.7%.

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