Lennar CEO said higher borrowing costs, inflation and stronger resale competition limited the homebuilder’s expected improvement during the third quarter.
- Lennar’s Q3 revenue and EPS missed estimates, while new orders fell 9% and deliveries declined 3%.
- Lennar CEO Stuart Miller said mortgage rates rose to about 7% from 6.4%-6.5%, making homes less affordable.
- He also said the Fed is unlikely to provide near-term relief, while existing homes are creating stronger competition for Lennar.
Lennar Corp. (LEN) CEO Stuart Miller said elevated mortgage rates are squeezing housing affordability, tempering the improvement expected for the homebuilder. With 30-year rates near 7%, inflation pressuring household budgets and resale inventory rising, buyers face tougher conditions despite persistent housing shortages supporting demand.
Lennar’s Disappointing Q3 Results
Lennar’s Q3 revenue of $8 billion and earnings of $1.19 per share both missed the analysts’ consensus estimates of $8.4 billion and $1.29 per share, respectively, according to Fiscal.ai data.
New orders fell 9% to 20,879 homes, while deliveries dropped 3% to 20,840 homes. For the fourth quarter, Lennar expects to receive orders for about 19,500 to 20,500 homes and complete 22,000 to 23,000 home deliveries. The company expects gross margin around 15.5% to 16%, with the average home selling for about $370,000 to $380,000.
The company expects Q4 earnings in the range of $1.30 to $1.65, below the $1.86 estimate. Lennar stock inched up 0.1% overnight ahead of Friday. The stock has fallen more than 5% so far this month.
Lennar Warns Interest Rates Are Hurting Affordability
Speaking during the Q3 earnings call, Miller said mortgage rates climbed during the quarter, reversing some of the relief seen earlier in the year. The 30-year fixed mortgage rate rose from roughly 6.4%-6.5% during the company’s previous earnings call to about 7%, while the 10-year Treasury yield remained near 5%.
“While market conditions are certainly not terrible, as can be seen from our rather strong volume, the market becomes more difficult as interest rates test affordability, particularly within our price ranges.”
He added that nearly half of Lennar’s prospective buyers in many markets cannot qualify for mortgages, as higher monthly payments squeeze affordability.
Lennar Sees Little Near-Term Relief From Fed
Miller pointed to energy costs as an important factor behind persistent inflation. Higher prices for gasoline and electricity can reduce households’ willingness to take on a major financial obligation.
“The Federal Reserve’s assistance is clearly off the table for practical purposes and not a near-term source of relief. While this was clearly the hope of some, yesterday’s rate hike clearly demonstrates that the Fed will continue to be data-driven.”
Existing-home sellers have also become a stronger competitor, particularly in Lennar’s target price ranges, added Miller.
LEN Stock: Retail View
On Stocktwits, retail sentiment around the stock slumped to ‘bearish’ from ‘bullish’.
A user said, “At the moment, there’s no reason to own any of the homebuilding stocks, imo.”
Another user said, “Expect more analyst downgrades and price target changes tomorrow…near term 70.”
LEN stock has declined 22% year-to-date.
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