(Recasts lead; adds context, updates share price)
By Sanjana Shivdas
July 23 (Reuters) - PulteGroup Inc on Tuesday forecast full-year home sales and gross margins below analyst expectations, as it grapples with rising land costs, sending its shares down as much as 7%.
Homebuilders in the United States have struggled with a lower supply of homes, especially at the lower-price end of the housing market because of land and labor shortages, as well as expensive building materials and sluggish wage growth that has crimped demand.
U.S home sales fell more than expected in June as a persistent shortage of properties pushed prices to a record high, suggesting the housing market was struggling to regain speed since hitting a soft patch last year.
Chief Executive Officer Ryan Marshall, however, said he expected demand to pick up in the second half of the year, helped by lower mortgage rates.
Pulte’s forecast overshadowed better-than-expected quarterly profit and also weighed on shares of rivals Lennar Corp, Toll Brothers, D.R. Horton Inc and KB Home .
Pulte expects to sell 22,300 to 22,800 homes this year, compared with estimates of 22,764 units, according to Refinitiv data.
The company expects an average sales price of between $425,000 to $430,000 for the remainder of the year, and forecast gross margins to be between 23% and 23.3% for 2019, compared to a consensus of 23.9%.
Marshall said lower mortgage rates attracted additional buyers, adding that a strong economy and low unemployment supported demand for new homes.
Mortgage rates have been falling since the Federal Reserve signaled it was pausing its interest rate raising campaign.
The 30-year fixed mortgage rate has dropped to about 3.75% from a peak of 4.94% in November, according to data from mortgage finance agency Freddie Mac.
“As we see interest rates come back down along with some stabilization in overall pricing, I think that’s helped to bring affordability in a lot of markets back online,” Marshall said.
He added that consumer activity remained high as home buyers returned to the market following softer demand in the back half of 2018.
Pulte’s average selling price rose by about 1% to $430,000, a sign that home prices are not appreciating quickly, compared with a rise of 9.5% in the year-ago quarter.
Orders, an indicator of future revenue, rose 7.1% to 6,792 units in the quarter. Marshall said Pulte was seeing better buyer interest in the first few weeks of July.
In the quarter, Pulte sold 5,589 homes, down from 5,741 a year ago, and in line with broader homes sales data which showed U.S. homebuilding falling for a second straight month in June.
Pulte’s net income fell to $241 million, or 86 cents per share, in the quarter ended June 30. Total revenue fell 3% to $2.49 billion.
Analysts on average expected a profit of 83 cents per share on revenue of $2.48 billion, according to Refinitiv data. (Reporting by Sanjana Shivdas in Bengaluru; Editing by Shailesh Kuber and Sweta Singh)