Horton's Early 2007 Phoenix Strategy: Volume?

Chances are investors will not take issue with one figure in Horton’s next set of financials, at least in the information provided for the Phoenix metro area. D.R. Horton appears to have adjusted its operations to focus on high volume. It has heavily discounted its new homes in areas Belfiore Real Estate Consulting (“BREC”) has visited during the last 30 days. Consider the following example. In the far southeast East Valley Region, in Coolidge, Florence, and the Pinal County area of Queen Creek area, BREC surveyed 29 builder sales offices in January that offered homes on 40’ to 45’ wide lots. Horton was priced the lowest, on a base price and price per square foot basis. In the table below, low and high net pricing averages and low and high prices per square foot for the 3 active Horton projects surveyed are compared with the 26 other communities surveyed:

Southeast Area Net New Home Pricing and price per Square Foot on 45' Wide Lots:
      Ave. Price Range of Homes Offered ------------  Average Price per Square Foot of Homes
Horton:             $126,328  |  $157, 118                               $67.08  |  $109.51                   
Competition:     $154,600  |  $202,326                                $88.10  |  $116.13
% Difference:        18.3%  |   22.3%                                   23.9%  |     5.7%

As might be expected, Horton sales are well above its competitor’s sales levels. BREC personnel found it difficult to talk with sales people because of the overwhelming number of potential buyers in its offices.

Our sources tell us Horton has trimmed building costs significantly in recent months. Previously standard “included” features in its new homes have been changed to lower priced features. In some cases, these standard features are below base features previously available in the market.

In areas like Coolidge, Florence, and Pinal County, area builders are struggling to compete with Horton. Buyers are currently not focused on standard feature differences. They simply seek lowest home price and best value. So, Horton is attracting buyers away from others and into its homes.

Is volume the answer Horton investors are looking for now? The question will likely be answered when the builder reports its profits, or lack thereof, in upcoming reporting periods. Investors can count on one thing from Horton’s Phoenix Divisions, though, high volumes at lower prices. If Horton is making money at current sales prices, builders located in similar areas may need to rethink their sales strategies.