US homebuilder DR Horton's net sales orders surged by more than 50% year on year in May and June as states reopened following widespread shutdowns in April, reflecting pent-up demand and low mortgage rates, executives said July 28.
The company reported net income for the fiscal 2020 third quarter of $631 million, up 33% from $475 million in the year-ago period.
"While housing market conditions are very strong today, we remain cautious as to the impact COVID-19 may have on the overall economy and our operations in the future," CEO David Auld said during the company's quarterly earnings call July 28.
He said the company's net sales orders in April, during the height of shutdowns, were 1% lower than year-ago levels. However, as shutdowns eased in May and June, he said the company's sales "increased significantly" while cancellations returned to normal levels.
Cancellations were seen at 22%, up from 20% in the year-ago quarter.
He also said net sales seen so far in July were comparable to May-June levels.
Demand for construction staple PVC rises
Housing construction is a top market for PVC, which is used to make pipes, window frames, vinyl siding and flooring, and other products. US PVC demand cratered in April as shutdowns halted a substantial percentage of construction across the country, prompting buyers to cancel orders and tighten inventories.
However, prices have strengthened as demand rebounded in May and June, fueled by buyers playing catch-up as the peak summer construction season loomed and a push to acquire volumes before prices rose further.
Domestic US PVC prices were 55 cents/lb ($1,212/mt) in early April, but fell 8 cents/lb ($176/mt) in April and May. US producers announced 3 cents/lb ($66/mt) price increases for June, July and August in an effort to recoup those losses. The domestic market accepted the June increase, but talks were still under way for the July increase, with negotiations pending for August as well.
Export PVC prices fell 38% in six weeks to $520/mt FAS Houston on April 29. Prices have since risen 41% to $750/mt FAS, S&P Global Platts data showed, largely on supply tightness because of continued reduced rates on top of some July turnarounds.
Supply was expected to remain tight through August, and a producer nominated limited export volumes at $790-$800/mt FAS Houston.
"It's a very, very, very good market out there," Auld said.
He said uncertainty remains. Several US states — including Florida, California and Texas — have experienced surges in positive novel coronavirus tests and US employment remained high at 11.1% in June, albeit down from 14.7% in April, according to the US Bureau of Labor Statistics.
However, Auld expects strong housing demand in the long term.
"You saw what happened at the end of March, completely out of nowhere," he said. "I do think we'll have a lot more visibility as we get into the November-December time period next year."
KB Home, another top US homebuilder, saw similar optimism. CEO Jeffrey Metzger said during the company's Q2 earnings call on July 24 that the company had resumed land development and increased land acquisitions during the quarter after halting those activities at the height of the shutdowns.
US housing starts reached 1.186 million in June, up 17.3% from May, but 4% lower than 1.235 million in June 2019, according to US Census Bureau data released July 17. Privately-owned building permits in June reached 1.241 million, up 2.1% from 1.216 million in May, but 2.5% under the June 2019 rate of 1.273 million.
US housing completions in June reached 1.225 million, up 4.3% from 1.174 million in May, but 5.1% below 1.166 million in June 2019.
