US homebuilder Lennar sees better housing market as mortgage rates ease

Bengaluru

LENNAR Corp on Wednesday pointed to an improving housing market, as home prices moderate and mortgage rates ease following a pause in rate hikes by the US Federal Reserve.

Shares of Lennar rose 4.5 per cent, and lifted homebuilders PulteGroup Inc, D.R. Horton, Toll Brothers Inc , KB Home between 2 and 5 per cent.

The No. 2 US homebuilder said it will focus on keeping prices down and making houses more affordable for customers across the board.

The moderation in mortgage rates and house prices will likely improve affordability, especially for first-time homebuyers who have been largely priced out of the market.

US home sales surged in February to their highest level in 11 months, as mortgage rates fell following signals from the Fed that it was no longer eyeing rate hikes.

Several years of rising rates had put a brake on parts of the US housing market in 2018.

The 30-year fixed mortgage rate dropped to an average of 4.28 per cent last week, the lowest in more than a year, from 4.31 in the prior week, according to data from mortgage finance agency Freddie Mac.

"It seems as though the market paused in the back half of 2019, corrected in the first quarter and is now on solid footing as we begin the 2019 spring selling season," Lennar executive chairman Stuart Miller said on conference call with analysts.

The homebuilder also signalled that incentives would start to decline in the second and third quarter, soothing concerns raised last quarter that it may increase incentive spending to boost sales.

Lennar's use of incentives during the quarter ticked up by only 40 basis points year over year, which seems reasonable based on the environment and does not point to overly aggressive price reductions to push sales, Morningstar analyst Brian Bernard said.

The company expects to deliver between 50,000 and 51,000 homes in 2019 at an average price of US$400,000 to US$405,000.

Analysts were expecting 50,545 units at US$421,000.

Strong orders

The homebuilder missed quarterly profit and revenue estimates as a spell of bad weather allowed Lennar to deliver only 8,820 homes, well below its forecast.

"While traffic and order rates can be made up if weather returns to normal in March, the most meaningful difficulties are likely to be seen in timely closings," BRIG analyst Carl Reinhardt said.

In February, US homebuilding fell more than expected as construction of single-family homes dropped to a near two-year low.

Orders for Lennar rose 23.7 per cent to 10,463 homes - a bright spot in an otherwise cloudy first quarter - beating its forecast of 9,700 to 10,000 units.

"New orders beat guidance by almost 500 orders, which tells me that demand was better than expected," Mr Bernard said.

Lennar shares have fallen 16 per cent in the past 12 months compared with a 10 per cent fall in the broader PHLOX Housing Index. REUTERS