D.R. Horton is betting that small will become the next big thing in homebuilding.
After posting strong gains in its new luxury line, the national homebuilder this year announced it would introduce a smaller, more affordable line for first-time buyers. The product, Express Homes, is being tested in 13 of the company’s 78 markets.
Jacksonville is one of them. D.R. Horton opened its first model in the Spring Pointe subdivision this week.
“We wouldn’t be getting into the Express brand if we didn’t feel like that that was the next segment of the business to recover,” D.R. Horton CEO Donald Tomnitz said during the company’s April quarterly conference call.
In all, the company is offering four different Express Home floor plans in two Westside communities, with starting prices ranging from $111,990 to $120,990. All models have at least three bedrooms, two baths and a two-car garage.
The homes will feature low maintenance James Hardie siding, vinyl floors in kitchens and wet areas, and laminate countertops. Options include several color selections on to-be-built homes and choices on appliances like washers, dryers, refrigerators and microwaves.
The limited options are intended to create a turnkey product that simplifies buying and keeps prices low.
During the recovery, many U.S. homebuilders focused on building expensive — and often large — homes believing many entry-level buyers couldn’t afford to be in the market. D.R. Horton, known for building homes for the first-time and first-time move-up buyer, in 2013 introduced a luxury line, Emerald Homes, priced at more than $500,000.
The strategy did well. In April D.R. Horton posted 18 percent net income growth, with Emerald Homes accounting for 16 percent of the company’s home sales revenue, up from 9 percent a year earlier.
Now, D.R. Horton sees untapped market share at the other end of the spectrum.
As home prices have risen the past two years, first-time buyers have been priced out of the market, Tomnitz said. With Express Homes, the company hopes to convert renters and young adults who are living with their parents into ownership.
“If we can get that product price point down, then I believe there are people out there who truly will buy,” Tomnitz said.
Mike Matthews, broker for Watson Realty Chaffee Road, said there is demand for that kind of home on Jacksonville’s Westside.
First-time homebuyers earn enough to get financed at $80,000, $90,000, or even $120,000, but most of the homes at that price point are old and need repairs.
Owners are still upside-down on mortgages and no one has the extra money to replace, for example, a worn-out roof – a repair necessary to qualify through FHA.
“On paper, we have a lot of inventory, but when you get down to what has to be fixed, it makes it difficult,” Matthews said. “If you have a $2,000 repair, a lot of times it will blow the deal.”
D.R. Horton has more than 100 lots available in the Spring Pointe subdivision for building Express Homes, according to its sales office information.
“I would think they would sell quickly,” Matthews said. “Even if a buyer is financing with a VA loan up to $120,000 or $150,000, with nothing down, they’re looking at payments of $700 or $800 a month. You can’t rent that cheap.”
D.R. Horton expects to “hit aggressive targets” for Express Homes in 2015 after its 2014 rollout, Tomnitz said.
Locations initially selected, such as Jacksonville, are “affordable markets (rather) than the higher end markets.”
For more information on D.R. Horton Express Homes in Jacksonville, visit drhorton.com/Florida/North-Florida/Jacksonville.aspx.