Lennar reports untempered demand for new homes in Q3

Lennar reported 15,564 new home orders during its latest quarter, up 16% year-over-year

Lennar's Stuart Miller, Rick Beckwitt and Jon Jaffe (Lennar; iStock)
Lennar's Stuart Miller, Rick Beckwitt and Jon Jaffe (Lennar; iStock)

The pandemic hasn’t kept Americans from buying new homes, as Lennar Corp. reported earnings, orders and deliveries rose in the third quarter, following two previous periods of growth.

Record low interest rates, buyers’ interest in houses with new technology and better internet connections, plus an overall lack of housing for rent and sale are fueling demand for new homes, executives told analysts during a conference call on Tuesday.

“We expect home sales to remain strong for the foreseeable future,” Lennar Executive Chairman Stuart Miller said on the call.

Yet, while millennials continue to value homeownership, Covid-19 could “dissipate” the move from urban to suburban, and from apartments to homes, Lennar CEO Rick Beckwitt said.

Lennar reported 15,564 new home orders during its latest quarter, ended Aug. 31. That marks a 16 percent increase over the same period last year and beat the Miami-based homebuilder’s expectations. New orders also increased 20 percent from the second quarter. The total value of Lennar’s new orders rose to $6.3 billion, up 20 percent, year-over-year and up about 30 percent from the prior quarter.

The company delivered 13,842 homes during the third quarter, up 2 percent year-over-year and up 10 percent from the prior quarter. Average sale prices, however, remained largely flat, year-over-year, at $396,000.

Lennar’s backlog also rose, reaching 19,697 homes for the quarter, up 4 percent year- over-year, and up 10 percent from the prior quarter. The value of that backlog, $7.9 billion, increased at about the same rates.

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Lennar is known for simple, no frills, affordably priced homes. The company has reported strong earnings in the past few years as a housing shortage has led to strong demand for new single-family homes.

For the third quarter, Lennar reported net income of $666.4 million, or $2.12 per share, up 30 percent from $513.4 million, or $1.59 per share in the same period of last year.

The company’s stock fell, however, by about 3 percent on Tuesday, reaching $76.46 a share at 2:53 p.m. In its guidance, Lennar said that in the fourth quarter it expects the average home sale price to fall to $390,000, and new orders to be lower — between 13,800 and 14,300 — with deliveries between 15,500 and 16,000.

Lennar reported gross margins on home sales of 23.1 percent in the third quarter, up from 20.4 percent in the third quarter of last year and up from 21.6 percent the prior quarter.

“Simply put, sales could have been stronger with a singular focus on volume,” Miller said. “But instead, we drove margin growth and cash flow while allowing price appreciation to cover cost escalation in the future.”

Lennar’s new housing starts grew 17 percent year-over-year, reflecting a catch-up on a production slowdown during earlier days of Covid-19. “We increased starts and production as the market recovered, so production and deliveries will normalize as we move into 2021,” Miller said.

Despite this, the growing cost of construction has Lennar executives cautious about too much building in the short term. Labor and materials costs stayed flat quarter-over-quarter and year-over-year, which executives credited to cost management.

Yet, lumber prices had almost doubled from the start of the quarter to August. Lennar President Jon Jaffe said lumber future pricing has dropped about 19 percent and he expects a decline of about 40 percent in the next three months.