NVR sees profits thanks to homebuilder tailwinds

Construction tailwinds pushed NVR, Inc. to solid profits last year, with the mortgage banking unit seeing accelerated gains to end 2023, but homebuilding income slowed.

Overall fourth quarter numbers met consensus estimates of analysts surveyed by Yahoo Finance, as the Reston, Virginia-based homebuilder and lender raked in $410 million in net income, equivalent to $121.56 per diluted share. But the total came in 5.4% lower from $433.2 million three months earlier. Fourth-quarter profit also fell 10.9% from $454.8 million year over year.

For all of 2023, NVR saw an 8% decline in net income to $1.59 billion compared to $1.73 billion in 2022. 

While NVR saw elevated interest in new-home sales with orders up 25% in the fourth quarter from the same period a year earlier, settlements were down by 7%. The average sales price also went down 2% annually to $450,900, driving pretax income in NVR's homebuilding segment lower by 17% to $454.3 million from $548.3 million year over year. In the third quarter, the number had come in at $500.1 million. The division builds and sells homes under brand names Ryan Homes, NVHomes and Heartland Homes.

Meanwhile, NVR's mortgage lending business saw a 12.5% increase in pre-tax income in the fourth quarter to $29.7 from $26.4 million 12 months earlier. But the most recent numbers were down from $38.5 three months earlier. Full-year pre-tax profit in mortgage banking finished at $132.8 million, an 8.7% rise from $122.2 million in 2022. Closed-loan production for the year ended up at $5.74 billion. 

NVR's results come as the leading homebuilder sentiment index surged to end 2023 but still sits below pre-pandemic levels. Despite the pickup in activity last year, builders frequently turned to incentives and rate buydowns to sell their inventory in 2023, as higher borrowing costs remained a challenge to buyers and lenders alike. 

Higher-than-historical interest rates and limited inventory suppressed buyer activity for much of the year, sending existing-home sales to their lowest since 1995, but the new-construction market managed to pick up some of the slack with consistent growth in the second half of 2023.

The favorable builders' market led NVR's stock price to increase over 22% over the past 12 months, closing trading on Tuesday at a price of $7,120.67. But surging equity value across homebuilding companies may be close to peaking if they haven't already done so, according to Jay McCanless at Wedbush. Even though overall business volumes should increase in 2024 from last year, the wealth advisory firm downgraded several homebuilders at the end of 2023 as investor enthusiasm may have come to a plateau.

"It feels to me like we've priced in a lot of momentum on both the purchase mortgage side as well as the actual demand side for the homebuilders," he said in a recent interview with National Mortgage News, but that it could still be "a good year."

Overall revenues at NVR decreased 10.3% on an annual basis to $2.43 billion in the fourth quarter, compared to $2.71 billion a year earlier. Revenues for all of 2023 saw a similar 9.6% drop to $9.52 billion from $10.53 billion in 2022.