Home builder Lennar (LEN) has started trimming prices and offering buyer incentives to bolster sales.
The bad news here is that a slowing housing market is an early indicator of rising odds of a recession. The good news is that this is supposed to be what happens–the housing sector slows–when the Federal Reserve raises interest rates to fight inflation.
“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,” Executive Chairman Stuart Miller said in a statement that went along with the company’s quarterly earnings report. “We began to see these effects after quarter-end.” Seven regions had significant slowdowns this month, Lennar said. They were Raleigh, North Carolina; Minnesota; Austin, Texas; Los Angeles, the Central Valley, and Sacramento in California; and Seattle.
The company increased incentives, such as mortgage rate “buy-downs,” and lowered prices in some subdivisions to boost demand.
Despite the evidence of a slowdown, Lennar is sticking to its earlier forecast for deliveries of about 68,000 homes in its full fiscal year. But, the company cautioned, with demand now starting to wane after the pandemic boom, “current attempts at guidance are tantamount to ‘guessing’ and not ‘guiding,’” Miller said. He warned about the slowdown already underway, calling it a “complicated moment in the market.”
Lennar reported that purchase contracts for the three months through May rose 4% from a year earlier to 17,792, beating analyst estimates. The gross margin on home sales jumped to 29.5% from 26.1% in its previous fiscal second quarter.
Lennar’s shares were up today, June 22, by 3.06% at the close.
