Lennar’s Strong Earnings Tempered by Housing Slowdown
Lennar exec chairman Stuart Miller (Real-Estate-Impact.Miami.edu, iStock)
Lennar’s second-quarter earnings surpassed expectations, though the company tempered the good news with a warning about what lies ahead for the housing market and the overall economy.
The Miami-based home construction giant reported a 49 percent increase in net earnings, bringing the company’s profit to $1.3 billion. During the same period, new orders increased 4 percent from last year’s second quarter, exceeding predictions despite continued supply chain slowdowns and rising inflation.
Lennar’s stock spiked by 19 percent after the report’s release and remained elevated throughout the day as Wall Street rallied after last week’s meltdown.
The earnings report came at a pivotal moment for the housing market, which experienced rapid growth during the pandemic but now faces numerous challenges.
“While our second-quarter results demonstrate strength and excellent performance throughout the quarter, the weight of a rapid doubling of interest rates over six months, together with accelerated price appreciation, began to drive buyers in many markets to pause and reconsider,” said Stuart Miller, Lennar executive chairman, in the report. “We began to see these effects after quarter end.”
Rising mortgage rates have begun to pile onto historically high housing prices, cooling off what was piping-hot demand for homes over the past two years. But the paucity of existing homes for sale has been a boon for home builders.
The Federal Reserve has taken aggressive steps to try to curb inflation. Last week the central bank raised the federal funds rate by 0.75 percentage points, the biggest increase since 1994. The move is expected to continue driving up mortgage rates. “The relationship between price and interest rates is going through a rebalance,” said Miller.
The industry has begun to feel the sting of a housing market slowdown, with proptech companies Compass and Redfin announcing mass layoffs and a stock market slide last week.
In anticipation of the continued headwinds, Lennar moderated its expectations for the coming months. It maintained its forecast of 68,000 deliveries in 2022. “We recognize that current attempts at guidance are tantamount to ‘guessing’ and not ‘guiding,’” said Miller.
