Oct. 16 (Bloomberg) -- D.R. Horton Inc., the second largest U.S. homebuilder, said orders fell 39 percent in the fiscal fourth quarter as banks restricted lending.

Orders for the period ended Sept. 30 dropped to 6,374 from 10,430 a year earlier, the Fort Worth, Texas-based company said today. The value of houses ordered declined 48 percent to $1.3 billion and the cancellation rate was 48 percent.

``We expect the housing environment to remain challenging,'' Chairman Donald Horton said in a statement. ``Market conditions for new home sales declined in our September quarter as inventory levels of both new and existing homes remained high while pricing remained very competitive. We also experienced reduced mortgage availability due to tighter lending standards.''

New home sales have dropped an average of 18 percent and the median price has declined an average of 2.7 percent from June to August as lenders have raised standards even for those with the best credit. Five of the largest homebuilders have recorded real estate write downs and expenses of $4.7 billion in their most recent quarters to contend with the housing decline.

Fiscal Year's Results

Net sales orders for fiscal 2007 dropped 35 percent from a year earlier to 33,687 and the value declined 41 percent to $8.2 billion, the company said.

``The market has deteriorated pretty dramatically, particularly in the last couple of months,'' said Alex Barron, who follows homebuilders for Wayzata, Minnesota-based Agency Trading Group Inc.

Fourth quarter orders fell 48 percent in the Northeast, 52 percent in the Midwest and 27 percent in both the Southeast and South Central regions, the company said. It had the most orders in South Central area and the least in the Midwest.

D.R. Horton fell 52 cents, or 3.7 percent, to $13.58 yesterday in New York Stock Exchange composite trading, valuing the company at $4.27 billion. The stock is down 49 percent this year through yesterday, compared with a 50 percent drop in a Standard & Poor's index of the 15 largest homebuilders.

The reduced availability of certain mortgage products such as Alt-A loans and tighter underwriting guidelines has reduced the pool of available homebuyers. On Oct. 12, Centex Corp. Chief Executive Officer Timothy Eller said in a statement that market conditions are ``extremely difficult.'' Centex said it would take a $1 billion writedown on property and generate less cash from sales than forecast.

Top Markets

D.R. Horton, founded in 1978, sells primarily to people buying first and second homes. It operates in more than 80 markets in 27 states and sold homes at an average price of $256,200 last quarter.

Phoenix, Dallas, San Antonio and Denver are the company's top markets by closings, according to UBS Investment Research.

More than 90 percent of D.R. Horton's buyers used fixed rate mortgages for their purchase and 14 percent had Alt-A financing, the report said. Less than 1 percent were subprime borrowers, UBS said in the Sept. 24 report. Alt-A mortgages are available to borrowers with good credit who generally cannot or choose not to verify their income.

In March, Chief Executive Officer Donald Tomnitz said the housing market will remain in a slump this year and that ``2007 is going to suck, all 12 months of the calendar year.''

D.R. Horton will issue complete quarterly results on Nov. 20 before the open of U.S. trading. It's projected to have a net loss, excluding items, of 21 cents a share, according to the average estimate of analysts in a Bloomberg survey. The company's largest competitor is Lennar Corp., the biggest homebuilder by revenue.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net .