Key facts
- Ashton Woods is prioritizing margin over volume amid a challenging housing market.
- Net new orders fell 6.7% and average sales prices slipped 3.6% in the last quarter.
- Gross profit margins declined to 22.7% from 25.0% a year prior.
- The company's cancellation rate increased to 24.9%.
- Affordability concerns, hesitant buyers, and resale competition are key headwinds.
- Ashton Woods is being disciplined with land acquisition and spec inventory.
Ashton Woods, a major private homebuilder, is navigating a challenging market by prioritizing profitability over sales volume, according to executives speaking on a first-quarter earnings call. The company is willing to accept slower sales rather than offer excessive incentives that would erode margins.
Executives cited persistent headwinds including affordability concerns, hesitant buyers, and increased competition from the resale market. These factors have contributed to a decline in net new orders, a drop in average sales prices, and a rise in cancellations. The company's gross profit margin fell to 22.7% from 25.0% a year ago.
Buyers are struggling to qualify for mortgages due to higher interest rates and living costs, necessitating incentives from builders. Ashton Woods is adjusting its incentive strategies on a market-by-market and community-by-community basis, offering financing and closing-cost assistance for entry-level buyers and options for higher-priced buyers. However, the company stated it will not push incentives further if the economics do not make sense.
Land acquisition is also a significant constraint, with many sellers unwilling to lower prices to reflect current market conditions. Ashton Woods is maintaining discipline in new land commitments, underwriting deals based on current pricing and incentive levels rather than future market expectations. Opportunities for attractive land deals are currently scarce, with the company focusing on premium locations.
The builder has also intentionally reduced its speculative home inventory, ending the quarter with 2,444 spec homes, a decrease of about 7.3% from the previous year. This reduction reflects a focus on matching spec starts to sales pace.