Housing

D.R. Horton CEO: Somebody Please Tell Home Buyers Rates Are Still Low


Americans are happy to pay more for a home, but they aren’t so keen on higher mortgage rates. That dynamic was evident his morning in an update from D.R. Horton (DHI), the largest U.S. homebuilder.

The Texas-based builder’s new home orders dropped 2 percent from the year-earlier period, which Horton Chief Executive Officer Donald Tomnitz attributed to consumers’ high sensitivity to tiny interest rate changes. “I don’t mean to date myself, but … no one around this table can remember mortgage rates being higher than 6 percent or 7 percent,” he said. “And I think one of the factors that we are dealing with, quite frankly, is most analysts, and most young buyers—especially first-time home buyers in the market today—have been accustomed to low rates for all their lives.”

That may be the case. But buyers might also be getting a little better at mortgage math, given the brutal lessons the real estate market doled out in 2008 and 2009. A single percentage point over three decades adds up fast.

Take the average D.R. Horton home. A year ago, it sold for $227,304, which a buyer could have financed for 30 years at around 3.38 percent, according to Freddie Mac. Recently, it sold for $261,400, and buyers probably locked in a rate around 4.49 percent.

The difference in sales price is only $34,096, but the 2013 buyer will end up paying about $104,000 more over the life of the loan, including an additional $64,000 or so in interest payments. That’s not an insignificant amount of cash. It’s enough to cover a bare-bones Tesla (TSLA); it’s also roughly 25 percent more than the median household income in the U.S.

Which is not to say homebuilders are in serious trouble. Horton booked a 40 percent increase in both sales and profit in the recent quarter. But the buyers required to fix up the U.S. housing market may need a little more encouragement to stay on board.

Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock

Too Cool for Crisis Management
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • DHI
    (DR Horton Inc)
    • $22.96 USD
    • 0.02
    • 0.09%
  • TSLA
    (Tesla Motors Inc)
    • $235.24 USD
    • -0.05
    • -0.02%
Market data is delayed at least 15 minutes.

Sponsored Financial Commentaries

Sponsored Links

Buy a link now!

 
blog comments powered by Disqus