D.R. Horton, the nation's highest-selling homebuilder, is increasing its use of incentives and cutting prices to ease the concern of buyers in a market reeling from elevated mortgage rates.

One of the most common incentives used by the Arlington, Texas-based builder and other companies is mortgage rate buy-downs, where the seller takes some profits from sales of new houses to lower buyers' interest rates that are now at about 7%. About 77% of buyers who used D.R. Horton's mortgage company in the three months ended June 30 took advantage of mortgage rate buy-downs, an increase from a year earlier, the builder said.

"To address affordability, we are still using incentives, such as mortgage rate buy-downs, and we have reduced the prices and sizes of our homes where necessary," D.R. Horton Chief Financial Officer Bill Wheat said Thursday on a conference call to discuss its earnings results. "Although our home sales gross margin improved sequentially this quarter, incentives are elevated and we expect them to remain near these levels, assuming similar market conditions and no significant changes in mortgage rates."

Economic headwinds led D.R. Horton to say it now expects to sell 500 fewer houses this year at the top of its estimate range than it projected last quarter, forecasting a maximum sales total of 90,500 for the year that ends Sept. 30, even with its incentives. Rival homebuilders, including PulteGroup will report their results in coming weeks.

Some prospective buyers are opting to postpone their searches as a result of persistently elevated inflation, record high housing prices and mortgage rates far above what they were in the COVID-19 pandemic, CEO Paul Romanowski said on the call. But he added that D.R. Horton is able to use techniques to lower the costs to buyers to close deals.

"The struggle becomes the traffic patterns," Romanowski said. "If we get the traffic, we're pretty good at conversion, but sometimes all the headline noise around interest rates can depress the traffic."

D.R. Horton tends to build smaller houses at lower prices. The average closing price of a D.R. Horton house during the quarter was $382,200, a 1% increase from a year earlier. But it comes at a time when the average cost of a U.S. house is $520,000, according to the Federal Reserve Bank of St. Louis.

The company also said it is slightly lowering expectations for revenue for fiscal year 2024.

It estimates its top-end revenue at $37.2 billion, down $500 million from the prior quarter, but higher than last year's revenue total of $31.6 billion.

The company's third quarter revenue of $10 billion was 2% higher than a year earlier, while net income inched up 1% to $1.4 billion. Net sales orders also increased 1%, to 23,001 residences. The value of the orders was flat at $8.7 billion.

The builder's cancellation rate for the third quarter was 18%, unchanged from a year earlier and at the low end of its historical norm, executives said.

D.R. Horton sold more houses last year than any other builder nationwide, according to Builder magazine. Lennar edged D.R. Horton for highest revenue.