Lennar Reports Earnings Today. What to Expect.

While revenue in the quarter was down about 2% from the same time last year, home deliveries and new orders both increased. Lennar’s earnings of $1.1 billion also dipped from last year’s $1.5 billion.

The average sales price for a home delivered in the quarter was $448,000, compared with nearly $500,000 last year. Home deliveries rose 8% to 18,559, and new orders jumped 37% to 19,666 from last year. The dollar value of new orders rose 30%, to $8.6 billion.

The Miami-based home builder’s guidance last quarter had called for third-quarter deliveries of 17,750 to 18,250, and new orders of 18,000 to 19,000. Analysts had expected 18,192 home deliveries in the quarter.

Shares initially fell 2% in after-hours trading before regaining some ground.

“Short housing supply, absorbed by strong primary and pent-up demand, continued to define a strong sales environment,” Lennar Executive Chairman and Co-CEO Stuart Miller said in a statement. “Homebuilders continued to use incentives, including buy-downs, to offset rising interest rates and tighter capital, which limit affordability.”

In the fourth quarter, Lennar expects to deliver between 21,500 to 22,500 homes with a gross margin between 24.4% to 24.6%, Miller said.

Lennar will hold a conference call at 11 a.m. Eastern time on Friday to discuss the results. It is accessible at investors.lennar.com. 

Mortgage rates climbed above 7% for the first time in decades last October and November, cooling demand in the broader housing market. 

The average 30-year, fixed-rate mortgage rose to 7.18% on Thursday, up from 7.12% last week, according to
Freddie Mac.
This time last year, the 30-year fixed-rate mortgage averaged 6.02%.

“Mortgage rates inched back up this week and remain anchored north of seven percent,” Freddie Mac’s Chief Economist Sam Khater said. “The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated.”

During the typically busy spring and summer months this year, existing-home sales were well below year-ago levels as higher mortgage rates sent both buyers and sellers to the sidelines. Leading data suggests the broad pullback has continued into September: A Mortgage Bankers Association index tracking the volume of applications for home purchase loans was 27% lower than year-ago levels last week, the trade group said Wednesday.

“Given how high rates are right now, there continues to be minimal refinance activity and a reduced incentive for homeowners to sell and buy a new home at a higher rate,” Joel Kan, the association’s deputy chief economist, said in a statement.

But sales of new homes have gained as buyers still in the market seek value. New home sales reported by the Census Bureau and Department of Housing and Urban Development climbed to a seasonally-adjusted annual rate of 714,000 in July, the highest level since February 2022.

Demand for new homes amid a scarce supply of previously owned houses boosted builder stocks in 2023. Two exchange-traded funds tracking home builders and related companies, the
SPDR S&P Homebuilders
ETF (XHB) and the
iShares U.S. Home Construction
ETF (ITB), have returned about 34% and 38% year to date, respectively, beating the broader S&P 500’s roughly 18% return. Lennar class-A shares are up 29% year to date.

Wedbush analysts Jay McCanless and Brian Violino expect Lennar to report higher-than-consensus earnings of $3.73 a share on revenue of $9 billion. The analysts’ outlook is based on expectations that Lennar will have closed 19,000 units in the third quarter, they wrote. They have a Neutral rating on the company’s shares, with a $123 price target. 

“We anticipate the conference call will be focused on current demand trends and how much, if any, Lennar is having to discount base prices or buy down mortgage rates to maintain pace,” the analysts wrote. “We also expect some insights as to whether or not existing homes are returning as a competitive threat for Lennar and the industry.”

Indeed, much of the 2023’s housing market story has concerned the shortage of previously-owned homes for sale, but early data show supply could be improving. New listings ticked up unexpectedly in August,
Zillow
(Z) said earlier this week. 

There were 350,000 homes listed for sale in August, 4% more than in July, according to Zillow—an atypical increase at a time of year when new listings typically wane. “Competition for houses tends to ease up at this time of year, giving buyers more time to decide and a better chance to negotiate on price,” Zillow senior economist Jeff Tucker said in a statement. “The inventory crunch is still far from resolved, but this was a small step in the right direction.”

Still, demand for new homes continued in August, according to recent builder conference calls.
Toll Brothers
(TOL), a luxury builder based in Fort Washington, Pennsylvania, said last month that deposits in the first three weeks of August were higher than they normally are. 

“August deposits are usually down 25% to 30% versus July based on long-term historical trends as summer winds down and kids returned to school,” Toll Brothers CEO Douglas Yearley said on an August conference call. “So far in August, deposits are only down 11%, and both physical and web traffic is up slightly compared with July.”

Ara Hovnanian, the CEO of New Jersey-based home builder
Hovnanian Enterprises
(HOV), said at the end of August that the company was raising its full-year guidance because of the summer’s strong sales environment. “The sales pace has slowed somewhat in August compared with a blazing comparison for the third quarter but the year-over-year comparison is very strong, and customers seem to be adjusting their expectations to the current interest rates,” Hovnanian said on an earnings call.

Investors will get another read on the market for newly built homes next week. Two government measures of new-home construction, housing starts and authorizations, are expected to be released Tuesday. Housing starts gauge the beginning of construction on a new home, while authorizations, more commonly known as permits, measure how many new units are approved by local municipalities. 

Consensus estimates compiled by FactSet foresee the seasonally-adjusted annual rate of housing starts falling to 1.42 million from a preliminary 1.45 million in July. Permits are also expected to fall, to a seasonally-adjusted annual rate of 1.43 million from 1.44 million in the month prior.

Write to Shaina Mishkin at [email protected]