Lennar erases 2024 gains as high rates hamstring US housing
The challenges facing Lennar and other homebuilders shed light on a large vulnerability for the US economic outlook.
Shares of homebuilder Lennar Corp. are down more than 5% in early trading after the company issued underwhelming quarterly results and had a relatively dour outlook on what awaits in the near term.
Their estimated deliveries in Q1? Below Wall Street’s projection. New orders? Also disappointing.
And margins on home sales — something we’ve flagged as a critical difference between the outlook for US homebuilders compared to the rest of the stock market — are expected to sink to their lowest level since the second quarter of 2018.
Selling fewer units than expected as profitability deteriorates is not a recipe for success. Accordingly, shares of Lennar have erased its 2024 gains with Thursday’s big decline.
“In the course of our fourth quarter, the housing market that appeared to be improving as the Fed cut short-term interest rates proved to be far more challenging, as mortgage rates rose almost 100 basis points through the quarter,” said Stuart Miller, co-CEO. “Even while demand remained strong, and the chronic supply shortage continued to drive the market, our results were driven by affordability limitations from higher interest rates.”
Lennar’s business challenges are also indicative of one of the most visible vulnerabilities facing the US economy at large should high interest rates continue to hamstring the housing market.
Housing starts are not trending higher. Total units under construction are trending lower amid a wave of multifamily completions. Employment in residential construction has held up very well amid these softening trends, but may be hard-pressed to do so in a world where would-be homebuyers face “affordability limitations” and homebuilders have weakening margins.
