Lennar, one of the nation’s top homebuilders, warned in its latest earnings call that high mortgage rates, a housing shortage, and economic uncertainty are creating challenges that are starting to squeeze its profits.
In a quarterly call with investors on Friday, Lennar executives said that orders rose 1%, to 18,355, for the three months that ended in February, compared with a year earlier. Deliveries rose 6% annually, to 17,834.
Those figures beat Wall Street expectations, as did Lennar’s quarterly profits of $520 million on revenue of $7.6 billion.
Still, shares of the homebuilder slumped more than 4% on Friday, closing at their lowest price since November 2023, after Lennar warned that weakness in the housing market is beginning to affect its profit margins.
“While demand remains strong, persistently higher interest rates and inflation, combined with a downturn in consumer confidence and a limited supply of affordable homes, made it increasingly difficult for consumers to access homeownership,” said Stuart Miller, Lennar’s chairman and co-CEO.
Miller says that Lennar, like other homebuilders, has continued to rely on incentives to lure prospective buyers, including the use of mortgage rate buydowns, which lower a homebuyer’s monthly payments.
Net of incentives, Lennar’s average home sales price declined to $408,000 for the quarter, 1% lower than a year ago.
“Generally speaking, net prices for homes, together with rents in overbuilt apartment markets, have started to decline, as demand remains constrained by affordability,” said Miller.
Lennar reported a gross margin for the last quarter of 18.7%, less than analysts had expected, and projected that its margin would continue to contract in the current quarter, to 18%.
Still, the company said it expects to deliver between 19,500 to 20,500 homes for the second quarter, in line with Wall Street expectations.
“Despite an uncertain macro environment, we are optimistic about our business and remain focused on our mission of building a healthier housing market and bringing attainable homes to more people,” said Miller.
Lennar’s warning comes after a recent report from the Realtor.com® economic research team that found the nation’s housing supply gap is now at 3.8 million units.
At the current construction pace, it would take more than seven years for homebuilders to catch up with demand and solve the housing crisis, the report found.
