PulteGroup, one of the nation's largest homebuilders, is providing an upbeat sales forecast for the rest of 2024 despite needing to offer incentives to boost demand as buyers struggle with persistently high mortgage rates.
The Atlanta-based builder expects to sell more homes this year, about 31,000, than the 28,603 it sold last year.
"As we sit here at the midpoint of 2024, I would say that it is shaping up to be a very good year for Pulte," President and CEO Ryan Marshall said on a conference call Tuesday to discuss earnings for the quarter ended June 30.
Industry analysts predict the Federal Reserve will cut interest rates in the fall, but Pulte executives said they aren't factoring that possibility into their guidance.
Buyer activity has been good, Marshall said, though it was less consistent than in the first quarter, resulting in a 4% drop in second-quarter net new orders.
"To the degree that the Fed actually cuts interest rates in the coming months, I think that will provide a powerful tailwind both financially and psychologically as we enter 2025," Marshall said.
An interest rate cut could put downward pressure on mortgage rates, analysts said. The 30-year, fixed-rate mortgage averaged 6.77% as of July 17, according to Freddie Mac.
Higher Home-Sale Margin
Pulte said its second-quarter home-sale revenue was $4.4 billion, up 10% from the second quarter a year earlier. Its total revenue rose to $4.6 billion from $4.2 billion, the homebuilder said. Net income jumped 12% to $809 million, and earnings per share increased 19% to a second-quarter record $3.83.
In the quarter, Pulte's home-sale gross margin increased 30 basis points to 29.9%, partly buoyed by a decrease in incentives from the first quarter. Still, its CEO reiterated what he said more than a year earlier. The company won't be "margin-proud," an indication that it will continue to offer incentives to buyers to sell homes, Marshall said.
Though Marshall didn't provide specifics, one of the most common incentives is a mortgage rate buy-down, where a builder takes profit from sales to lower the interest rate for the buyer. D.R. Horton, the nation's highest-selling homebuilder, said last week that it's using buy-downs and other incentives and expects to keep doing so. Other builders also have cited buy-downs as an important tool to counter higher interest rates.
PulteGroup is the nation's third-largest homebuilder based on 2023 sales, according to Builder magazine. The company builds homes for first-time, move-up and 55-and-over buyers under the Pulte Homes, Del Webb, Centex, DiVosta, American West and John Wieland Homes and Neighborhoods brands. Pulte operates in more than 45 markets nationwide.
Pulte sold 8,097 homes during the quarter, up 8% from a year earlier, and the average sales price in the quarter increased 2% to $549,000, the company said. Its backlog decreased 4% to 12,982 homes, while the backlog value dipped 1% to $8.1 billion.
Chief Financial Officer Bob O'Shaughnessy, who intends to retire next year, cautioned that the third and fourth quarters will bring more home sales in Pulte's West region, and those properties carry a "lower relative margin profile" than what the company saw in the first half of the year.
"What we do know is that rates remain elevated, affordability is stretched and our delivery mix will be less favorable in the back half of the year," O'Shaughnessy said.
But Marshall remains optimistic over the long term, saying the company is positioned to grow 5% to 10% in 2025. He added that Pulte stands to benefit from an industrywide shortage of homes caused by years of building fewer homes than needed to meet demand.
