Dive Brief:

• Home orders at Atlanta-based PulteGroup rose 15% year-over-year during the fourth quarter to 4,202 homes, while closings were up 9% to 6,197 homes for the period, gains the company credited to renewed job growth and overall consumer optimism in the market.

• Profits were up 19.7% to $273.2 million for the quarter from a year ago and to 21.9% to $602.7 million for the year ending Dec. 31. Homebuilding revenues climbed 21.3% to $2.42 billion during the period, beating analyst estimates, and 28.6% to $7.45 billion for the year.

• The average selling price rose 11% year-over-year to $391,000 for the quarter. The company expects the average selling price to hold above $400,000 this year compared to $373,000 in 2016. It forecast gross margins of 24 to 24.5% this year, with price increases from 1.5 to 2%. 

Dive Insight:

Like other big homebuilders, Pulte continues to benefit from strong market fundamentals as rising labor and land costs continue to squeeze the company’s margins and higher interest rates threaten to impact affordability from a buyer perspective.

In a call with analysts on Jan. 26, company executives said that with the recent run-up in interest rates coming off historical lows, demand is expected to remain at healthy levels as the rate rise reflects an expansion of the nation’s economy.

Of the company’s fourth-quarter sales, those going to first-time buyers rose by 12% while the move-up category increased by 27% and active-adult by 1%. For the year, 43% of deliveries were to move-up buyers, following recent investment in that segment. The company cited the potential for investment in the first-time and active-adult categories going forward.

Pulte’s average selling price to first-time buyers surged 20% for the quarter to $301,000, driven by an increase in homes closed in California, which officials noted are often priced higher.

The forecast follows a similar one this week by homebuilder D.R. Horton, which noted that its targeted lines for the entry-level and active-adult categories allow the company to respond to growing demand in those segments.

The Commerce Department reported single-family housing starts fell 4% from November to an annual rate of 795,000 in December and were up 3.9% for the year, as the category continues its protracted recovery. Multifamily rebounded with a 53.9% increase from November to a rate of 417,000 starts in December as that volatile segment of the housing market begins to cool.

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