D.R. Horton, the largest U.S. home builder, recently announced that it is creating a new unit—Express Homes—that will focus on producing "entry-level" homes. The properties offered under the new brand will range in price from $120,000 to $150,000.
CNBC notes that the decision to move into this market comes after the company enjoyed strong profits while focusing on high-end homes during the first quarter. However, CEO Donald Tomnitz explained why he believes the time is right to begin branching out into the lower end of the market.
Following the recession, many of the low-price homes that were put on the market were purchased by investors who paid in cash and aimed to put the properties on the rental market. First-time buyers and those with low incomes, who depend on credit to make purchases, were largely locked out of the market. However, demand from these families and individuals is still there, and D.R. Horton is hoping to provide the supply.
Stephen East, senior managing director of the research firm ISI Group, told CNBC his analysts view Horton's pivot as "the right move."
"Horton's cost structure and operational experience at the entry level makes them one of the few builders that can do this profitably," East said. "Also, we are firmly convinced the first-time-buyer segment is getting access to more credit, which will lead to more demand for this low-entry level product."
Regardless of the size of the loan being sought, lenders must perform a thorough credit risk assessment for each applicant. Being able to draw on alternative data sources during the process can help lenders ensure that borrowers will be able to make payments in a timely manner.