By Sagarika Jaisinghani
(Reuters) - D.R. Horton Inc said home sales picked up in October as mortgage rates eased from two-year highs and the effects of policy paralysis in Washington faded.
Shares of the largest U.S. homebuilder, which also reported a better-than-expected 40 percent jump in quarterly revenue, rose 2 percent before the bell.
"Since D.R. Horton ... did not cut prices or raise consumer incentives to drive volumes, we view today's beat as enough of a catalyst to continue buying the shares," Sterne Agee & Leach analyst Jay McCanless wrote in a note to clients.
Orders booked by homebuilders slowed this year - the second full year of the U.S. housing market recovery - as mortgage rates hit a two-year high in July and the Federal Reserve started talking about easing the stimulus launched during the financial crisis.
However, industry experts expect demand to recover once buyers adjust to the elevated mortgage rates.
While interest rates in October remained above those a year earlier, they were down from the high of 4.8 percent touched in September.
"The interest rate headwinds obviously are having some short term impact, but we remain convinced it is more of a pause and not a structural change in the strength of the underlying fundamentals of housing demand," Williams Financial Group analyst David Williams said.
D.R. Horton, which reported a 2 percent fall in orders for the fourth quarter ended September 30, said sales in October rose from a year earlier.
PulteGroup Inc , the second-largest U.S. builder, reported a 17 percent fall in quarterly orders last month but said it expected the fall in demand to be "short-lived".
Orders are a key indicator of the performance of builders as their revenue is recognized only after a house is handed over to the buyer.
D.R. Horton, faced with a shortage of developed land, is also building fewer homes and raising prices. The company said on Tuesday that the value of its orders rose 14 percent to $1.43 billion in the latest quarter.
Net income jumped 39 percent to $139.5 million, or 40 cents per share, from $100.1 million, or 30 cents per share, a year earlier.
Homebuilding revenue rose 40 percent to $1.80 billion.
Analysts on average had expected earnings of 40 cents per share on revenue of $1.78 billion, according to Thomson Reuters I/B/E/S.
D.R. Horton shares were up at $18.50 before the bell. They had dropped by about a third to Monday's close since interest rates started rising in May.
(Reporting by Sagarika Jaisinghani and Mridhula Raghavan in Bangalore; Editing by Kirti Pandey)