Construction firm DR Horton is bucking the trend among property developers by focusing on building cheaper homes targeted at first time buyers, and the strategy seems to be working.
David Auld, the company’s CEO, told CNBC News that the company had benefited from attacking the entry-level housing market first, before anyone else thought to do so.
“We were first movers, and we were aggressive first movers,” said Auld, while reporting the company's earnings last week. He explained that DR Horton's Express brand of homes had driven the firm's market share gains, while its higher-end Emerald homes brand and mid-range Horton brand had seen much slower traction.
DR Horton's Express brand launched just two years ago at a time when most builders were focused on luxury homes. But the Express homes, priced at $120,000 to $150,000, began selling like hot cakes. And even though Express home prices have now increased in many markets to $200,000, the brand has built a growing presence in important states like California, the Carolinas, Florida, and Texas.
"They are doing the best job of any of the large builders executing at entry level, and I think you have to have that as you go through 2116," said Stephen East, a homebuilding analyst for Evercore ISI.
DR Horton's focus on lower-priced homes is important, because home prices are growing at an “unhealthy pace” due to limited inventories, the National Association of Realtors (NAR) said recently.
East said that his latest research indicates more builders are looking to follow DR Horton's initiative in building homes for first time buyers, but said it would take time for them to catch up. Nonetheless, he said the first time buyer market is where the demand is going to be in the next couple of years, with around two million new households expected to try and move from renting to owning in that period.
"Our field research is showing that the builders are starting to rotate toward that entry level, but it's going to take a few years to get there," said East.