Advertiser Disclosure

advertising disclaimer
Skip to main content
new home building

PulteGroup Says New Home Sales Plunging, Stops Stock Guidance Until "Conditions Stabilize"


Apr 27, 2020 by Marc Rapport
Get our 43-Page Guide to Real Estate Investing Today!

Real estate has long been the go-to investment for those looking to build long-term wealth for generations. Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide.

*By submitting your email you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.

PulteGroup, Inc. (NYSE: PHM) says the market for new homes is in such turmoil that it has withdrawn its stock guidance and won't be issuing any more until "conditions stabilize."

The nation's third-largest homebuilder said last week that its quarterly results showed increased sales and a strong balance sheet and that January and February provided "tremendous momentum and strong buyer demand" until the pandemic took hold in March.

The change has been dramatic. In an earnings call on Thursday, April 23, Atlanta-based PulteGroup, which operates in 44 markets in 23 states, said it recorded more than 800 net new orders for homes in the first full week of March. For the last full week, there were 140.

Now, said President/CEO Ryan Marshall, "Based on real-time insights supplied by frontline managers, we are routinely adjusting sales, construction, purchasing, mortgage, and other functional practices to the rapidly changing market conditions."

Developing, a virtual business

For instance, the company, whose subsidiaries include Del Webb and Centex, said it's keeping an eye on lending criteria in its mortgage financing arm and has slowed land development but not yet mothballed new-home communities where development is underway.

"The latter may become a tactic depending on how the slowdown plays out," Marshall said on the earnings call, "but for now we want to continue turning assets even at a reduced rate."

The company said it's also trying to use virtual technology as much as possible to design, show, and sell homes and that social distancing and cleaning best practices are in place at construction sites that remain active.

March ended badly, April may be worse

PulteGroup said net income for the first quarter ending March 31 was $204 million, or $0.74 per share, up from $167 million, or $0.59 per share, in the year-ago quarter. The company also enjoyed a 16% increase year over year in homes closed to 5,373.

But the skid that began in mid-March continued through the first three weeks of April, which were down a little below 50% of the first quarter pace of sales. The sample size is small, Marshall said on the earnings call, but given the economic conditions, "it is no surprise that housing demand has slipped even further."

He added, "It's this level of volatility, along with the dramatic economic slowdown and ongoing job loss, that led us to withdraw our guidance for 2020 … and we will not be providing any new guidance until conditions stabilize."

The company also is suspending its stock repurchases.

No better crystal ball

How and when does PulteGroup anticipate a market rebound? "We don't have a better crystal ball than anybody else does in terms of what the recovery ultimately looks like. Is it a U, is it a V, is it an L, is it a square root recovery?" Marshall said, adding that there are "a ton of theories out there" and that they are studying them all.

Critical to any equation is the speed and depth of an economic bounce back, particularly in the labor market. "If the job losses can be minimized and the folks that have been furloughed are able to be called back, I think that bodes well for housing," Marshall said.

The inventory shortage the market had going into the coronavirus-induced recession is also serving to help underpin prices, he said.

"We haven't seen in the market broad-based reductions on base pricing, which I think is generally a positive," the PulteGroup chief executive said.

Part of the bigger pandemic picture

The U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD) reported last week (April 23) that median and average sales prices for new homes remained higher year over year, at $321,400 and $375,300, respectively, for March 2020, compared with $310,600 and $372,700 in March 2019.

But, like PulteGroup has experienced, sales nationally fell 15.4% from February to March to an annualized estimated rate of 627,000 units. That's also 9.5% below the March 2019 annualized rate of 693,000 units.

Monthly residential construction starts also fell off sharply in March, HUD and the Census Bureau reported. Real estate agents also are seeing a drop in activity as consumers wait out the pandemic, and at least one major lender has begun tightening its credit standards.

Unfair Advantages: How Real Estate Became a Billionaire Factory

You probably know that real estate has long been the playground for the rich and well connected, and that according to recently published data it’s also been the best performing investment in modern history. And with a set of unfair advantages that are completely unheard of with other investments, it’s no surprise why.

But those barriers have come crashing down - and now it’s possible to build REAL wealth through real estate at a fraction of what it used to cost, meaning the unfair advantages are now available to individuals like you.

To get started, we’ve assembled a comprehensive guide that outlines everything you need to know about investing in real estate - and have made it available for FREE today. Simply click here to learn more and access your complimentary copy.

Marc Rapport has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.