Today, the largest real estate developer in the United States released its financial report, but what the market is concerned about is not the quarterly performance

The largest residential builder in the U.S., D.R. Horton, will release its earnings report on Tuesday, but investors' focus has shifted from quarterly performance to more forward-looking issues: changes in demand following the decline in mortgage rates and the potential impact of adjustments to housing policies under the Trump administration.

Analysts expect the company to report earnings per share of $1.93 for the first fiscal quarter, with revenue around $6.6 billion, a significant decline from $2.61 per share and $7.6 billion in the same period last year. More importantly, the market hopes to receive signals from the company regarding demand since the decline in mortgage rates, as well as interpretations of the impact of changes in housing policy.

Recently, Trump stated that he would instruct Fannie Mae and Freddie Mac to purchase mortgage-backed securities, pushing rates down. Additionally, he plans to discuss housing policy at the World Economic Forum in Davos on Wednesday, making D.R. Horton's earnings call a key window for observing the industry's outlook.

The net impact of policy changes on builders remains unclear. On one hand, lower rates may reduce builders' costs for mortgage buybacks; on the other hand, the government may pressure builders to prioritize entry-level housing sales over profit margins, leading to complex effects.

Profit Margin Pressure Becomes the Industry Norm

The housing affordability crisis is eroding builders' profitability. Analysts expect D.R. Horton's gross margin this quarter to drop from 22.7% in the same period last year to 20.1%.

The dilemma facing builders is that, despite high home prices and high rates suppressing demand, they cannot choose to "stay put" like existing homeowners. According to data from the National Association of Home Builders, two-fifths of builders lowered prices in January, and 65% offered some form of sales incentives.

The widespread use of discounts and incentives directly compresses profit margins. For price-sensitive buyers, builders either sacrifice margins or face a decline in orders, or both.

Analysts expect the company's new orders to increase from 17,837 units in the same period last year to 18,525 units, indicating that sales growth requires a trade-off with profits.

Early Signs of Demand Recovery

The market is capturing early signs of improvement in housing demand. Data from the Mortgage Bankers Association shows that mortgage applications for home purchases rose last week. According to Barron's, real estate agents report that the rebound in buyer interest occurred earlier than in previous years.

These positive signs emerged after Trump announced the directive for Fannie Mae and Freddie Mac to purchase mortgage-backed securities, pushing rates down. If demand continues to improve, builders may not need to offer as many discounts to close deals, which would be a significant turning point for the industry.

BTIG analyst Ryan Gilbert noted in a research report that lower rates could improve builders' performance guidance, "but it may still be too early for builders to be certain that the decline in rates is sustainable or sufficient to stimulate demand."

Investors will closely monitor the company's latest assessment of demand trends during Tuesday's conference call.

Policy Uncertainty Clouds the Outlook

The changes in housing policy under the Trump administration have added complexity to the industry's outlook. The government previously discussed adopting a "carrot and stick" approach, rewarding or punishing builders based on whether they meet government housing goals, and even proposed restrictions on stock buybacks by builders.

These policies are not necessarily favorable for builders. KBW analyst Jade Rahmani pointed out in a research report:

"On one hand, narrower MBS spreads and lower interest rates may benefit builders by reducing mortgage buyback costs, provided that builders do not pass these benefits onto buyers. Conversely, the pressure to prioritize entry-level housing sales over profitability may increase delivery volumes and supply at the expense of gross margins, which will have complex implications."

Analysts expect D.R. Horton's second-quarter profit margin to be 20.2%, with new orders totaling 24,240 units. The company's management guidance on order and profit margin outlook, as well as their interpretation of policy changes, will be key information for assessing the industry's direction