Lennar, the Miami, Florida-based homebuilder, reported third-quarter results showing profit that more than halved compared with the prior year as elevated mortgage rates and softer buyer activity hit demand for new homes. Shares of the company declined about 3% in after-hours trading following the release.
For the quarter ended Aug. 31, Lennar logged net income of $283.9 million, or $1.19 per share, down from nearly $591 million, or $2.29 per share, in the same period a year earlier. Total revenue for the quarter fell by more than 8% year-over-year to $8.05 billion.
Chief Executive Officer Stuart Miller characterized the quarterly performance as coming "below expectations," saying it reflected a challenging economic environment "which has deteriorated" since the prior quarter. Management pointed to persistently high borrowing costs and weakening confidence among prospective buyers as the central factors slowing activity in the new-home market.
Mortgage rates moved toward the 7% range during the quarter, contributing to an affordability squeeze that prompted many buyers to postpone purchases, the company said. That trend, the firm noted, has pressured demand across the new-home sector.
"Rates are responding as inflation remains above the Fed’s target, driven by geopolitical tension and higher oil prices," Miller said.
Industry sentiment tracked by U.S. homebuilder indexes declined in June and July before an unexpected uptick in August. Lennar linked the mixed readings to ongoing economic uncertainty and to steep building costs that management said were aggravated by the U.S.-led war with Iran.
Looking ahead, Lennar expects the average sales price in the coming quarter to sit between $370,000 and $380,000 per unit. That range compares with an analysts' consensus figure of $383,610 compiled by LSEG.
Outside commentary on the outlook for rates echoed the company’s cautious posture. A Reuters poll of property experts this week indicated U.S. mortgage rates are likely to remain higher than previously forecast and to fall only modestly over coming quarters, which is expected to keep home price growth muted through next year.
Summary
Lennar’s latest quarter shows a marked decline in profitability and revenue as near-7% mortgage rates and weaker buyer confidence curb demand for newly built homes. Management described results as below expectations and cited deteriorating economic conditions, elevated inflation, geopolitical tensions and higher oil prices as contributors to the current rate environment. The company projects average next-quarter sales prices slightly below analyst estimates.
Key details:
- Third-quarter net income: $283.9 million, or $1.19 per share, versus nearly $591 million, or $2.29 per share, a year earlier.
- Quarterly revenue: $8.05 billion, down over 8% from a year ago.
- Projected average sales price next quarter: $370,000 to $380,000 per unit; analysts' estimate: $383,610 (LSEG).
Market context
Lennar highlighted an affordability squeeze as mortgage rates approached 7% during the quarter. The company and industry indicators point to weaker consumer confidence prompting buyers to delay purchases, slowing demand across the new-home market. Management also pointed to higher building costs and geopolitical factors as compounding pressures.