Homebuilding supply chain snags slow sales pace: DR Horton CEO

The US housing construction remains "very robust," but supply chain disruptions amid improving economic conditions and strong demand for new homes has created shortages in building materials and a tight labor market, adding uncertainty to construction times, DR Horton CEO David Auld said July 22.

"We have slowed our home sales pace to more closely align to our current production levels and are selling homes later in the construction cycle when we can better ensure the certainty of home close date for our homebuyers," he said during the nation's largest homebuilder's fiscal third-quarter 2021 earnings call.

"We expect to work through these issues and increase our production capacity," Auld said.

The company reported a net quarterly income of $1.115 billion, up nearly 77% from $630.7 million in the year-ago quarter.

That housing boom has sharply increased demand for construction staple polyvinyl chloride, pushing domestic pricing up 43.5 cents/lb ($959/mt) since June 2020, S&P Global Platts data showed. Domestic PVC was last assessed July 21 at 89.5-91.5 cents/lb ($1,975-$2,017/mt), an all-time high since Platts began assessing the market in 2001.

PVC demand cratered in April 2020 when construction activity thinned amid the height of coronavirus pandemic-related shutdowns. Demand rebounded as shutdowns eased, fed by consumers seeking more space while working from home, often overseeing children's educations while offices and schools remained closed.

Demand outpacing supply chains

However, supply chains have been unable to keep up with demand that rebounded after shutdowns eased and strengthened as COVID-19 vaccines became more available earlier in 2021.

In addition, those supply chain clogs were exacerbated by a deep freeze that hit the US Gulf Coast in mid-February, forcing weeks-long shutdowns of petrochemical plants that make chemicals used to manufacture everything from PVC and carpet to the foam used in furniture and plastics in appliances.

PVC is used to make pipes, window frames, vinyl siding, and other products.

US housing starts also have illustrated that demand, although lower authorized building permits could signal that demand is moderating or supply chain snags has slowed overall housing construction growth.

June housing starts were up 6.3% from May, while authorized building permits were down 5.1% on the month, according to data the US Census Bureau released July 20.

DR Horton CFO Bill Wheat said the company's average price on net sales in the quarter was $359,200, with a 17% cancellation rate, down from 22% in the year-ago quarter.

Auld said the company was working to expand its production capability, "managing through a market that none of us have ever seen."

'We're going to provide a home for everybody walking in" a model home, he said, "We just need to keep them patient and understand their frustration."