By Chelsea Stevenson

–D.R. Horton’s fiscal third-quarter earnings soared

–The results follow strong results from PulteGroup and Meritage

–Horton is the nation’s largest builder

(Adds results from competitors in second paragraph and context in third and fourth paragraphs. Adds analyst quotes in paragraphs nine and 15. Updates stock price in final paragraph.)

D.R. Horton Inc.’s


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-2.18%



fiscal third-quarter earnings soared as the home builder sold more homes, increased orders and gained from a tax benefit.

The results cap a week filled with strong reports from the nation’s largest home builders: PulteGroup Inc.


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+1.26%



and Meritage Homes Corp.


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+1.48%



, Thursday reported improved quarters featuring double-digit order gains and increased selling prices.

That is good news for the sector that has spent the last six years limping through its worst downturn in generations. Now, record-low interest rates and low housing prices are luring buyers off the sidelines. And there are signals that home-price declines have ended: Home prices rose in May from the month earlier, the fourth-straight monthly increase, while data from real-estate website Zillow Inc. (Z) showed home prices in the second quarter rose from the year-ago period for the first time since 2007.

Still, the recovery is proving bumpy. June’s new-home sales slumped by 8.4%, falling to the lowest level since January, while recent data showed June existing-home sales surprisingly dropped by 5.4% and fell to the lowest level in eight months. There is also mounting concern that the economy could weaken further, and mortgage lending standards remain tight, preventing many would-be buyers from buying homes.

While these tightened standards are certainly affecting D.R. Horton’s entry-level clientele–a group more likely to have bruised credit reports–the company predicts it will deliver strong results in coming quarters.

“We expect increased profitability in our fiscal fourth quarter,” said Donald R. Horton, chairman of the Ft. Worth-based company, in the premarket release. “We will continue to utilize our strong balance sheet and liquidity to profitably grow our business into fiscal 2013.”

For the quarter ended June 30, D.R. Horton, the nation’s largest home builder by annual closings, reported a profit of $787.8 million, or $2.22 a share, compared with a year-earlier profit of $28.7 million, or nine cents a share.

The latest quarter included a noncash tax benefit of $716.7 million from a reduction of the company’s valuation allowance for its deferred tax assets. During the depths of the downturn, builders who were losing money received a credit called a deferred tax asset that allows them to offset future tax liability when they begin making money again.

“By reversing the DTA…Horton is confirming that it has turned the corner and that it has returned to sustained profitability,” said Alex Barron, founder and analyst with the Housing Research Center, an independent research firm in El Paso, Texas.

Home-building revenue rose 14% to $1.12 billion. Analysts expected earnings of 20 cents a share on revenue of $1.19 billion.

Closings rose 9% from a year earlier, while orders climbed 25%. J.P. Morgan had expected a 15% order increase.

The cancellation rate was 23%, down from 27% in 2011′s third quarter.

The company’s backlog of homes under contract stood at $1.7 billion as of the end of the quarter, up from $1.2 billion. “The strong backlog will be key for future revenue and, ultimately, profits,” said Barclays analyst Vincent Foley.

Shares were trading down 3.5% recently to $18.15. The stock is up 55% in the past 12 months.

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