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  • Writer's pictureRealFacts Editorial Team

Nation's Biggest Homebuilder Posts Higher Earnings As Orders Surge

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Lennar, the nation's largest homebuilder, has reported a remarkable surge in orders, underscoring the strong demand for new homes despite the challenge of higher mortgage rates. In its most recent quarter, the Miami-based company saw orders increase by nearly 20%, driven by a nationwide shortage of homes as higher interest rates deter existing homeowners from selling.

For the quarter ended May 31, Lennar's revenue climbed 10% to $8.8 billion, while earnings rose 9% to $954 million. The company reported 21,293 new orders and completed 19,690 homes, a 15% increase in completions.

"The macroeconomic environment remained relatively consistent with employment remaining strong, housing supply remaining chronically short due to production deficits over a decade, and demand strength driven by strong household formation," Executive Chairman Stuart Miller stated.

Strong Demand Despite High Mortgage Rates

Lennar's impressive results reflect the broader market trends highlighted by other major homebuilders, such as Toll Brothers, which also reported strong earnings for its fiscal quarter ending April 30. Both Lennar's and Toll Brothers' results through May indicate that the demand for new homes remains robust, even as mortgage rates hover near 7%.

However, not all indicators are positive. Builder confidence in the new single-family home market dipped in May. Despite this, the largest publicly traded homebuilders maintain an optimistic outlook, confident that buyer demand will persist throughout the year.

The constrained supply of existing homes for sale is a significant factor in the high demand for new single-family units. Many homeowners are reluctant to sell and give up their historically low mortgage rates secured during the COVID-19 pandemic. This "lock-in effect" has essentially frozen the market for existing home sales, driving more buyers toward new construction.

Incentives to Attract Buyers

Builders are also employing various incentives to attract buyers, including mortgage rate "buy-downs." This strategy involves using profits from sales to lower the interest rates for buyers, an option not available to sellers of existing homes.

"A majority of builders are still doing buy-downs," said Brad Hunter, a Florida housing consultant, in an interview with CoStar News last month. "Of course, it cuts into their bottom lines, but those already were very strong so they have room to shave off a little bit of their profit margins."

Freddie Mac reported that mortgage rates fell to 6.95% in the week ending June 13, down slightly from 6.99% the previous week but still higher than the 6.69% average rate from the same week last year.

Toll Brothers' Performance

Toll Brothers, another prominent homebuilder, also demonstrated strong performance in its fiscal second quarter. The Fort Washington, Pennsylvania-based company generated $2.65 billion in sales, up from $2.49 billion in the same period last year. Toll Brothers completed 2,641 homes at an average price of about $1 million, marking a 6% increase in completions and setting second-quarter records for both categories. These achievements contributed to earnings of $4.55 per diluted share, up 60% from the previous year.

Lennar's Legacy and Market Position

Founded in 1954, Lennar targets a diverse range of buyers, including first-time homebuyers, move-up buyers, and those aged 55 and over. Last year, the company topped all U.S. homebuilders with $32.4 billion in revenue, according to Builder magazine.

As the market for new homes continues to thrive despite the challenges of higher borrowing costs, Lennar's strategic use of incentives and pricing adjustments positions it well to maintain strong sales and earnings. The company's recent performance reflects a resilient demand for new homes and a dynamic approach to navigating the complexities of the current housing market.


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