Homebuilder Taylor Morrison posted double-digit growth in the fourth quarter despite the national housing market challenges of rising mortgage rates and home costs. The results stood out against some of its competitors that have reported lower profit margins and average home selling prices.
On Taylor Morrison's earnings call, CEO Sheryl Palmer said Wednesday that strong housing markets and diverse product options lifted the company’s profit margins and sales, adding that both factors are pain points for homebuilders contending with would-be buyers who remain sidelined.
Scottsdale, Arizona-based Taylor Morrison builds single-family home, condominium, and rental properties between its three brands: Taylor Morrison, Esplanade, and Yardly. Properties are geared toward first-timers, move-up buyers, and people looking for more luxury, resort-style living. In 2024, the firm sold more than 12,000 homes.
Many homebuilders offer incentives that include mortgage rate buydowns, where the builder offers financing at a lower-than-market interest rate. Taylor Morrison said it protects profits by leaning on buydowns for its first-time buyers rather than lowering home prices to capture them.
For Taylor Morrison, a buydown is generally 1% less than current mortgage rates. One-third of the builder’s customers are first-time buyers, with the rest move-up and resort buyers who tend to purchase high-priced homes and not seek a buydown.
In the fourth quarter, the average closing price of a Taylor Morrison home was $608,000, up 12% year-over-year.
“Where we're really using and where we're seeing the most competitive pressure would be within our first-time buyer communities,” Palmer said on the call. “The numbers of that first-time buyer, they're still very large. It's a very large penetration because they're trying to get out of, what I would say, are higher rents today.”
Major U.S. builders D.R. Horton and Lennar both recently noted fourth-quarter buyer demand for buydowns due to rising home prices decreased their profit margins and average selling prices, but they remain a critical strategy for securing buyers.
Hot housing markets
Palmer noted Taylor Morrison had increased its national home prices in January and said the company had pricing power in 50% of its communities, which likely resulted from high demand.
The firm builds in 12 states, primarily in the East and Sun Belt. Palmer pointed out strength in demand where the existing home market supply is low, specifically in North and South Carolina, Atlanta, and Dallas. Its focus is on main markets rather than tertiary ones, helping demand.
In D.R. Horton's recent earnings call, CEO Paul Romanowski said a buildup in inventory in some Florida and Texas markets pulled back sales.
“Tertiary markets are facing the most pricing pressure from rising inventory, as well as greater sensitivity to affordability constraints among first-time buyers attracted to such markets,” said Palmer.
With the potential of tariffs on Canada and Mexico looming, Taylor Morrison said pricing would likely not be affected until the fourth quarter.
Those price increases would be roughly $1,200 a lot if based on steel alone, Chief Financial Officer Curt VanHyfte said on the call. For additional tariffs, including on softwood lumber, those costs could increase between about $4,000 to $5,000 per home, said VanHyfte.
Taylor Morrison said fourth-quarter net orders increased by 11% year-over-year, with home closings revenue up 12% and margins of 24.9%.
Lennar and D.R. Horton posted net order decreases between 1% and 2% in the fourth quarter while another builder, Pulte Homes, showed a 4% increase.