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Major Builder Sees Opportunity in First-Time Buyers

JUL 25, 2014 11:02am ET
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Due to an improving job market and better credit conditions, homebuilder D.R. Horton Inc. is betting the time is right to cater to the first-time homebuyer.

"The first-time buyer will be the next segment of the business to recover," said Donald Tomnitz, the firm's chief executive.

The nation's largest homebuilder by revenue is in the early stages of rolling out its new Express Homes brand that will focus on providing affordable entry-level homes. Initially, the builder will be offering these starter homes in 13 markets in four states.

"We believe that the true entry-level buyer is underserved in the current market, especially after the significant increases in home prices over the last two years," Tomnitz said Thursday during a webcast on the builder's earnings for the third quarter that ended June 30.

The Fort Worth, Texas, builder sold 7,676 homes in the most recent quarter, up 23% from prior quarter and up 19% from a year ago.

In comparison, the Census Bureau reported Thursday that new home sales nationwide slid to a 418,667 seasonally adjusted rate in the second quarter that ended June 30, down 6.4% from a year ago.

Not everyone is as optimistic about first-time homebuyers.

"Affordability, particularly for first-time buyers, remains stretched," wrote economists in a Wells Fargo Securities report issued on July 9. "Homebuyers are waiting longer to buy a first home and they are showing a greater preference for homes near the urban core or key transportation links."

But Tomnitz is looking for Washington to provide some help in making it easier for first-timers to qualify for a mortgage.

"I think we will see some encouragement from the government in terms of trying to get more and more people into entry-level homes," he said. The CEO also noted that some lenders have already loosened their underwriting to qualify more borrowers.

D.R. Horton's mortgage company mainly serves its home-buying customers. DHI Mortgage offers Department of Veterans Affairs-guaranteed loans, Federal Housing Administration-insured loans as well as Fannie Mae and Freddie Mac loans. It sells substantially all of its loan production shortly after origination.

First-time homebuyers represented 42% of loan closings handled by the builder's mortgage company, compared to 50% a year ago.

FHA and VA loans accounted for 43% of originations in the latest quarter, down from 49% a year ago.

The builder didn't disclose production numbers in its release of quarterly results. But it brokered or originated 3,500 single-family loans in the prior quarter.

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