January 28, 2020 / 11:56 AM / 2 months ago

UPDATE 2-Pulte reinforces housing recovery led by lower prices, mortgage rates

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By Sanjana Shivdas

Jan 28 (Reuters) - U.S. homebuilder PulteGroup Inc's better-than-expected quarterly results on Tuesday reinforced a recovery in the U.S. housing market, led by lower prices and mortgage rates, sending shares up about 3% in premarket trade.

The company's results follow larger rival D.R. Horton Inc , which raised the upper end of its full-year home sales forecast and topped estimates for quarterly profit on Monday, pointing to a strong 2020.

Analysts expect a renewed housing market momentum to partly soften the hit on the economy from manufacturing, as the thaw in the U.S.-China trade tensions has been offset by Boeing's suspension of production of its grounded 737 MAX plane.

While the housing market accounts for about 3.1% of the U.S. gross domestic product, it has a bigger footprint on the economy, which is now in its 11th year of expansion.

"The recovery in housing demand that began earlier this year gained momentum through the fourth quarter as we realized strong sales across all buyer groups," Chief Executive Ryan Marshall said.

Marshall added that high employment, consumer confidence and a generally balanced inventory of new homes helped improve affordability.

Pulte's orders, an indicator of future demand, jumped 33.4% to 5,691 homes in the fourth quarter.

The company sold 6,822 homes in the quarter, up from 6,709 homes a year earlier, as average prices fell 0.2% to $429,000.

Evercore analyst Stephen Kim expects home prices to rise, particularly at the low end of the market over the next several quarters.

"Orders and gross margins would likely also benefit from looser lending standards, and we believe that this opportunity will drive multiple expansion across the group," Kim said in a pre-earnings note.

U.S. homebuilding surged to a 13-year high in December, suggesting the housing market recovery was back on track, and could help support the longest economic expansion on record.

Net income rose to $335.8 million, or $1.22 per share, in the fourth quarter ended Dec. 31, from $237.6 million, or 84 cents per share, a year earlier. Results included a $31 million pre-tax benefit.

Excluding items, the company earned $1.14 per share, above analysts' average estimate of $1.09 per share, according to IBES data from Refinitiv.

Total revenue rose marginally to $3.02 billion, beating analyst estimates of $2.98 billion.

Reporting by Sanjana Shivdas in Bengaluru; Editing by Vinay Dwivedi

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