Lennar rides on strong quarter, while flagging housing slowdown
(Bloomberg) – Lennar Corp. rose after announcing better-than-expected quarterly results and projecting continued strength in the face of the US housing slowdown. Still, executives said they have started to lower prices and increase incentives in several rapidly cooling markets.
For now, Lennar is sticking to its earlier forecast of deliveries of about 68,000 homes in its full fiscal year. The catch is that with demand now beginning to wane after the pandemic boom, “current attempts at guidance are ‘guessing’ not ‘guiding,'” Executive Chairman Stuart said on Tuesday. Miller in the company’s statement. He warned of the slowdown already underway, calling it a “complicated time in the market.”
While the Miami-based company beat expectations for orders and profit margins in the quarter through May, “the weight of a rapid six-month doubling in interest rates, coupled with accelerated price appreciation , began to prompt buyers in many markets to pause and reconsider,” Miller said in the statement. “We started to see these effects after the end of the quarter.”
Higher rates and economic headwinds depressed new orders and buyer traffic in June and increased cancellations, the company said on a call with analysts.
Seven regions saw significant slowdowns this month, Lennar said. They were: Raleigh, North Carolina; Minnesota; Austin, TX; Los Angeles, the Central Valley and Sacramento in California; and Seattle. The company has increased incentives, such as mortgage rate “buyouts,” and lowered prices in some subdivisions to stimulate demand.
Read more: Builders cut prices to unload homes in rapidly cooling U.S. markets
Lennar said purchase contracts for the three months to May rose 4% from a year earlier to 17,792, beating analysts’ estimates. Gross margin on home sales jumped to 29.5% from 26.1% in the previous fiscal second quarter. Shares soared 2.8% to $66.45 at 1:33 p.m. New York time, slightly outpacing the gain of the broader S&P 500 index.
Homebuilders are facing rough seas with mortgage rates climbing at the fastest rate in more than 50 years of record keeping, according to data from Freddie Mac. The Federal Reserve, in its effort to rein in runaway inflation, is managing to cool the overheated housing market, and Lennar says he’s well positioned to sustain sales in many areas.
Lennar’s results – which include the early spring when buyers were still rushing to strike deals – were “impressive and highlight the company’s execution and focus on production, which could support growth gains.” market share in a declining market,” said Bloomberg Intelligence analyst Drew. While reading.
Yet, while stocks may rise initially, “investors may not be willing to buy into short-term upside given the recognition of slowing demand and a less favorable pricing environment that will likely see an increase.” incentives that could also put inordinate pressure on margins”. Reading says.
One thing that may help builders is that the challenges of obtaining materials seem to be easing. For Lennar, the time it took to build a house in the neighborhood increased “only slightly sequentially,” said co-chief executive Jon Jaffe, a sign that the supply chain issues that have plagued the industry began to subside.
Lennar and other builders will have to manage the effects of rising interest rates on demand, which may mean having to lower prices to attract buyers.
“The Fed’s stated determination to reduce inflation through interest rate hikes and quantitative tightening has begun to have the desired effect of slowing sales in some markets and stalling price increases across the country. “said Miller. “While we believe there remains a significant shortage of housing, and particularly labor housing, in the United States, the relationship between prices and interest rates is rebalancing. .”
Read more: Mortgage Surge Towards 6% Holds Back Red-Hot Housing Market
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