Home Depot's stock drops after an earnings miss and downbeat outlook, as the lack of storms and continued weakness in the housing market hurt demand. ...

Core Insights - The U.S. homebuilding market is facing challenges, impacting the profitability of homebuilders like D.R. Horton, Inc. (DHI) due to high mortgage rates and affordability concerns among buyers [1][5] - D.R. Horton has implemented sales incentives, including a 3.99% FHA loan, to boost demand, but this has led to a decline in home closings and net sales orders [2][9] - The company's gross margin outlook for the fourth quarter of fiscal 2025 indicates a significant year-over-year decline, reflecting ongoing market weaknesses [4][9] Company Performance - In the first nine months of fiscal 2025, D.R. Horton's home closings decreased by 6.9% to 61,495 units, while net sales orders fell by 6.2% to 63,345 units [1][9] - For the fourth quarter of fiscal 2025, home closings are projected to be between 23,500 and 24,000 units, slightly lower than the previous year's 23,647 units [2][9] - The expected gross margin for the fourth quarter is between 21% and 21.5%, down from 23.6% year-over-year, indicating pressure on profitability [4][9] Industry Context - The weakness in the housing market is affecting not only D.R. Horton but also competitors like PulteGroup, Inc. and Toll Brothers, Inc., with high mortgage rates and affordability issues leading to reduced demand [5][6] - PulteGroup is experiencing moderation in buyer traffic and cancellations, while Toll Brothers is seeing resilience among higher-income buyers, though they too are cautious [6][7] - Supply-chain normalization is helping manage costs, but slower absorption rates are impacting community growth plans for all three companies [7] Stock Performance and Valuation - D.R. Horton's stock has increased by 28.2% over the past three months, outperforming its industry and the broader market [8] - The stock is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 13.7, indicating a premium compared to industry peers, suggesting strong market potential [11] - Earnings estimates for fiscal 2025 indicate a year-over-year decline of 17.8%, while fiscal 2026 shows a projected growth of 2.2% [12]

Core Insights - The U.S. housing market is expected to remain weak through next year due to high mortgage rates, with only a modest rebound anticipated in 2027 [1][3] - Persistent supply shortages and affordability issues have kept first-time buyers out of the market, while existing homeowners are reluctant to sell properties with lower mortgage rates [1][2] Market Conditions - Active listings have increased to their highest level this decade, but mortgage rates around 6.5% continue to suppress demand [2] - Home prices, as measured by the S&P CoreLogic Case-Shiller index, have declined for four consecutive months, marking the first such streak since February 2023 [2] Price Expectations - Home prices are projected to rise by only 2.1% this year and 1.3% in 2026, significantly lower than previous estimates of 3.5% for both years [3] - A slight recovery in home prices is expected in 2027, with a projected increase of 3.0% [4] Buyer Demographics - The median age of first-time homebuyers is now 38, a record high compared to the late-20s typical in the 1980s, indicating a growing affordability crisis [5] - Current average home prices are nearly 60% above pre-pandemic levels, further complicating access for young buyers [5] Interest Rate Impact - Lower interest rates could improve purchasing affordability for first-time buyers, but the relief is expected to be marginal [6] - The 30-year mortgage rate is forecasted to average 6.37% next year and 6.20% in 2027, remaining significantly higher than the approximately 4% typical of the previous decade [7]