US homebuilder DR Horton reports 56% surge in quarterly net home sales

Houston — DR Horton, the largest US homebuilder, saw net sales for new homes rise 56% year on year in the FY 2021 quarter amid strong demand fueled by low interest rates and a push for more standalone housing amid the coronavirus pandemic, the company said Jan. 26.

That demand amid tight supply has pushed domestic prices for construction staple polyvinyl chloride, used to make pipes, window frames, vinyl siding and other products, to 67-69 cents/lb ($1,477-$1,521/mt), the highest level since S&P Global Platts began assessing the market in 2001.

Export PVC prices in mid-December also reached $1,450/mt FAS Houston, an all-time high since Platts began assessing that market in 1983.

"Housing market conditions remain very strong," DR Horton CEO David Auld said Jan. 26 during the company's quarterly earnings call. "However, we remain cautious regarding the impact of the COVID-19 pandemic and other external factors that may have on the economy and our operations in the future."

The company reported quarterly net income of $791.8 million, up 84% from the year-ago period before the pandemic's global spread emerged.

DR Horton's average sales price on net sales orders in the quarter reached $314,200, up 4% from the prior year. Cancellation rates reached 18%, down 20% from the year-ago period.

"We continue to see very strong demand and a limited supply of homes, especially at affordable price points, and we still have pricing power and are currently using very few sales incentives," Jessica Hansen, vice president of investor relations, said during the call.

However, homebuilding costs are rising, she noted. Higher prices for inputs, which include PVC and lumber, as well as lots, will lead to higher home prices.

"Although we didn't see the impact of rising costs in our December quarter, we do expect both our construction and lot costs will increase on a per-square-foot basis in our homes closed next quarter," Hansen said. "With the strength of today's market conditions, we expect to offset these cost pressures with price increases."

Prices crashed, then surged to record highs in 2020

Domestic PVC prices fell 8 cents/lb in April and May of 2020 when widespread pandemic-related shutdowns stymied construction activity. Export prices also fell 39% in six weeks to $520/mt FAS by the end of April, a 12-year low.

Prices rebounded as shutdowns eased and demand rose for housing with more work-from-home space. Domestic prices rose 21 cents/lb through October to the current level, and export prices surged through December as well on similarly strong global demand.

Tight US supply also fueled those price hikes. Two of the four US producers declared force majeure on PVC in August – Formosa Plastics USA on operational issues, and Westlake Chemical after Hurricane Laura's Aug. 27 assault on Louisiana. Those force majeures were lifted on Dec. 9 and Jan. 1, respectively.

In addition, upstream US chlor-alkali rates that plunged to 68% in April from 90% in March remained reduced in the low to mid 70% range from May through October. Rates rose to 83% in November and 84% in December, close to mid-80% levels in the year-ago months, indicating producers were allowing rates to inch up on the pull of high downstream PVC prices.

Producers had been reluctant to significantly hike chlor-alkali rates amid weak demand for caustic soda, a byproduct of the production of chlorine, which is the first link in the PVC production chain.

US PVC producers also have another 7 cents/lb in pending price increases for January and February, but market sources said pushback has emerged after the string of increases in 2020. Export market sources also said buyers were resisting the $1,450/mt FAS pricing level after the 2020 surge.

While US PVC supply is expected to remain tight through Q1 2021 on turnaround activity, market sources expect pricing to retreat, albeit slowly.