Lennar

Lennar told analysts the company was continuing to benefit from low housing supply and was still raising prices

A Lennar executive noted that the housing market was benefitting from the fact “supply remains limited across the country and the need for affordable workforce housing continues to be at crisis levels.” “Stuart Miller — Executive Chairman: Buyers are seeking shelter from inflationary pressures as scarce rentals drive rents higher. Supply remains limited across the country and the need for affordable workforce housing continues to be at crisis levels. Clearly, production must catch up to the growing household numbers as production of dwellings over the past decade has lagged prior decades by as many as 5 million homes. Nevertheless, the rapid increase in interest rates, together with price appreciation have created at least sticker shock and perhaps a more structural cooling of demand.” (Lennar Q2 2022 Earnings Call, 6/21/2022)

A Lennar executive said the company uses a “ dynamic pricing model week by week to price products to current market conditions in order to maximize pricing and margin, pricing and margin while we maintain a carefully limited inventory level.” “Stuart Miller — Executive Chairman: As we have noted many times in the past, whether the market is improving or declining, we deploy our dynamic pricing model week by week to price products to current market conditions in order to maximize pricing and margin, pricing and margin while we maintain a carefully limited inventory level. As the market moves, we will continue to be responsive. In sync with selling homes, we will continue to leverage our extraordinary management team across the country and improve our cost of doing business. We have seen quarter-over-quarter improvements in our SG&A over the past years, and we expect to drive efficiencies through technology and process improvement to offset market adjustments wherever possible.” (Lennar Q2 2022 Earnings Call, 6/21/2022)

Lennar’s Co-CEO said housing markets like Dallas and Houston were “benefiting from extremely low inventory;” “Rick Beckwitt — Co-Chief Executive Officer and Co-President: During the second quarter and so far in June, we had 19 markets that continue to perform well. These include our six Florida markets, New Jersey, Maryland, Charlotte, Indianapolis, Chicago, Dallas, Houston, San Antonio, Phoenix, San Diego, Orange County and the Inland Empire. All of these markets are benefiting from extremely low inventory, and many are benefiting from strong local economy, employment growth and in migration. While these markets have continued to be strong, our sales pace and pricing power has started to flatten or has flattened in each of these markets. To maintain sales momentum, we have offered mortgage buydown programs and normalized market incentives.” (Lennar Q2 2022 Earnings Call, 6/21/2022)

Lennar’s Co-CEO said labor costs were responsible for all their costs increases while “Material costs were lower due to the lower priced lumber from starts in the second half of last year.” “Jon Jaffe — Co-Chief Executive Officer and Co-President: There are still challenges that occur, but we are managing them effectively as evidenced not only by this flattening of cycle time, but also by being above the high end of our guidance for second quarter closings. Our direct introduction costs in the second quarter were up 1.6% sequentially and 20% year over year, both lower than the comparable increases for the same period in the first quarter and fourth quarter of 2021. Rise in labor costs accounted for all of the increase in the second quarter. Material costs were lower due to the lower priced lumber from starts in the second half of last year.” (Lennar Q2 2022 Earnings Call, 6/21/2022)

Lennar’s Chairman: “ at the end of the day, we’re probably going to push more people from homeownership toward rental.”“Stuart Miller — Executive Chairman: So let me say, Steve, that the entire rental market is interesting right now. We’ve talked a lot over the quarters about housing shortage. The fact is that even as interest rates go up, people still need a place to live, household formation remains strong. I know you’ve covered a lot of these dynamics. And at the end of the day, we’re probably going to push more people from homeownership toward rental. That will mean multifamily, traditional multifamily as well as single famly for rent. And I think there’s going to be some dynamic shifting that moves around in all of these areas to the extent that we move more people out of home ownership and toward rental, it increases the demand for an already supply constrained component of the market. That’s the rental market, both SFR and traditional rentals. If you look at rental rates and where they have been moving over the past year, both on the traditional rentals and the single famly for rent, you’ve seen pretty aggressive movement upward in rental rates. That is a function of limited supply and growing demand.” (Lennar Q2 2022 Earnings Call, 6/21/2022)

Lennar’s Co-CEO: “we strategically have, as we’ve done in the last several quarters, sold our homes later in the construction cycle, which works very effectively in this market.” “Rick Beckwitt — Co-Chief Executive Officer and Co-President: The other thing that is behind the numbers is that we’ve been — we strategically have, as we’ve done in the last several quarters, sold our homes later in the construction cycle, which works very effectively in this market because our buyers want to lock their loan closer to the time that they’re going to be closing on the home. And as a result, we’ve limited presales or early sales, which makes the start pace a little bit higher than the sales space.” (Lennar Q2 2022 Earnings Call, 6/21/2022)

Lennar’s Co-CEO: “in many of these markets, net pricing and gross pricing is up 40% to 50% over the year-ago period….reality is that the markets have very limited inventory. We’re seeing rent growth in all of these markets.” “Rick Beckwitt — Co-Chief Executive Officer and Co-President: Well, as I said in my remarks, we’re adjusting pricing on a home-by-home basis. And in many of these markets, net pricing and gross pricing is up 40% to 50% over the year-ago period. So it takes relatively modest price adjustments to move the needle in order to spur some activity in these markets. What buyers are really focused on right now is just sticker shock. There’s been an increase in mortgage rates, and that combined with the economic headwinds, people just are concerned, are they making the right decision at this point in time. The reality is that the markets have very limited inventory. We’re seeing rent growth in all of these markets. So folks are really just trying to make sure that they don’t feel that when they talk to their neighbor that there’s a downward pull.” (Lennar Q2 2022 Earnings Call, 6/21/2022)

Lennar reported spending over $400 million on share buybacks and dividends in Q2 2022. “Diane Bessette — Chief Financial Officer: We are still on track to reach our goal of 2.75 years owned and 65% homesites controlled by year-end. And we remain committed to our focus on increasing shareholder returns. As we mentioned during the quarter, we repurchased 4.1 million shares totaling $321 million. Additionally, we paid dividends totaling $111 million during the quarter.” (Lennar Q2 2022 Earnings Call, 6/21/2022)

Lennar’s CEO told analysts it would not increase their housing starts: “we’re already planning on maintaining a very disciplined approach to our start pace”“Jon Jaffe — Co-Chief Executive Officer and Co-President: Yes, we’re very comfortable that we’ll be able to look at ’22 as an increase in starts over ’21. So some of that typical seasonality with Q2 being our strongest start quarter. But I think as we look across our platform, we are well positioned with our relationship with our trade partners to be able to manage a very healthy start pace. And to the extent that we do see more stabilization relative to the supply chain. I think what you’ll see is a tightening of the cycle time more than an increase in start pace. I mean, we’re already planning on maintaining a very disciplined approach to our start pace what we’ll pull in is the cycle time from the extended periods that we’re seeing now.” (Lennar Q4 2021 Earnings Call, 12/16/2021)

Lennar’s CEO: ”We have continued to strategically sell our homes later in the construction cycle to maximize sales prices and to offset potential cost increases. To that end, we have slowed sales to generate higher profits.” “Rick Beckwitt — Co-Chief Executive Officer and Co-President: Thanks, Stuart. As you can tell from Stuart’s opening comments, the housing market is very strong. Our team is extremely well coordinated, and our financial results continue to benefit from a solid execution of our core operating strategies. Key to that has been running a fine-tuned homebuilding machine where we carefully match homebuilding production with sales on a community-by-community basis. We have continued to strategically sell our homes later in the construction cycle to maximize sales prices and to offset potential cost increases. To that end, we have slowed sales to generate higher profits. Our fourth quarter results prove out the success of this strategy as we achieved gross margin increases of 300 basis points year over year and 70 basis points sequentially. During the fourth quarter, we started 4.5 homes per community, sold 4.3 homes per community, and we ended the quarter with less than 160 completed unsold homes across our entire footprint.” (Lennar Q4 2021 Earnings Call, 12/16/2021)

Lennar’s CEO: “We continue to achieve price increases and saw strength in all product cost categories from entry level to move up, and in our active adult communities.” “Rick Beckwitt — Co-Chief Executive Officer and Co-President: This production, margin-driven and sales-focused program will continue to improve margin, and lead to increased deliveries and profits in fiscal 2022. In the fourth quarter, new orders, deliveries, gross margins were solid in each of our operating regions. We continue to achieve price increases and saw strength in all product cost categories from entry level to move up, and in our active adult communities. Here’s some color on some of the stronger markets across the country.” (Lennar Q4 2021 Earnings Call, 12/16/2021)

Lennar’s CEO predicted “you’ll continue to see good (Average Sales Price) growth.”Rick Beckwitt — Co-Chief Executive Officer and Co-President: Well, it’s a combination of all those things. As we move out to some other markets that are a little bit further out, those are generally lower priced compared to sort of the more infill sales. We are adjusting and building a smaller footprint in many of our markets. And where Jon and I constantly balance with the team, pace and price. And you’ll continue to see good ASP growth. (Lennar Q4 2021 Earnings Call, 12/16/2021)

Lennar’s CEO said the company wouldn’t seek to accelerate new housing starts: “I don’t see a lot of upside in terms of increasing start pace.”“Jon Jaffe — Co-Chief Executive Officer and Co-President: So I think, Steve, we’ve just taken a straight shot look at what we know today about our cycle times and projected production. As I said in my response to the prior question, if we do see the stabilization, I think what you’ll see is a reduction in our cycle time versus a material pickup in our start pace. And if that does happen, we should lead to a pickup in closings. Relative to sales, as Stuart has commented, as Rick commented, we see a very strong sales environment. So to the extent that we change our start pace, not our closing pace for our start pace, we would adjust our sales pace to match that. But as I said, I don’t see a lot of upside in terms of increasing start pace. So I would think our sales would remain pretty consistent with the way that we planned them…. And just don’t see any reason to sell ahead of how we’re starting homes.” (Lennar Q4 2021 Earnings Call, 12/16/2021)

Lennar’s CEO: We could sell another 1,000 homes in the quarter if we wanted to without too much effort. It just doesn’t make sense to do that.” “Rick Beckwitt — Co-Chief Executive Officer and Co-President: Yes. We could sell another 1,000 homes in the quarter if we wanted to without too much effort. It just doesn’t make sense to do that. Jon and Stuart are exactly right. It doesn’t make sense to get over our skis that we’re good skiers. The market starts to improve a little bit and the supply chain normalizes itself out, we’ll close more homes. That’s just the reality of the situation.” (Lennar Q4 2021 Earnings Call, 12/16/2021)

The Lennar Group told analysts the Fed’s moves were weakening the housing market, but limited supply still drove demand

Lennar Group’s Executive Chairman: “ the Fed’s use of its interest rate tool to curtail inflation is certainly having the desired effect on the for-sale housing market.” “Stuart Miller — Executive Chairman: The housing market has continued to weaken as expected in response to the Fed’s too late but now very rapid and aggressive reaction to inflation. Homebuilding finds itself once again at the forefront of all that is happening in the economy, and the Fed’s use of its interest rate tool to curtail inflation is certainly having the desired effect on the for-sale housing market. The market is now adjusting. The interest rate movements were very sudden and adjusted very quickly, and that suddenness has always led to a pullback in housing demand.” (Lennar Q3 2022 Earnings Call, 9/23/2022)

Lennar Group’s Co-CEO said that because of mortgage rate increases “our new sales orders declined by 12% from the prior year on a 1% lower year-over-year community count.”  “Rick Beckwitt — Co-Chief Executive Officer and Co-President: Thanks, Stuart. As you can tell from Stuart’s opening comments, the overall housing market has been reacting to significant increases in mortgage rates, continued inflation and a volatile stock market, all of which has impacted affordability and homebuyer confidence. While we continue to have some strong markets, in our more challenging areas, we’ve had to adjust prices and increase incentives to regain sales momentum. Our sales strategy has been to find the market clearing price for each of our homes on a community-by-community basis as quickly as possible and price our homes accordingly. This has required a detailed understanding of traffic trends, inventory levels, community and product-specific pricing, financing programs and buyer sentiment. During the third quarter, our new sales orders declined by 12% from the prior year on a 1% lower year-over-year community count.” (Lennar Q3 2022 Earnings Call, 9/23/2022)

Lennar Group’s Chairman said demand for housing remained strong because “there’s still very limited inventory.” “Stuart Miller — Executive Chairman: There’s still very limited inventory, and there’s very little exposure to traditional inventory overhangs like foreclosures and speculators. Additionally, buyers are still seeking shelter from inflationary pressures on rentals as scarce rentals and increased demand from those who would otherwise purchase drive and keep rents higher. As we bring prices down and incentives up, demand is still there. And these fundamentals give us assurance that while there is short- and medium-term reconciliation, the long-term prospects for housing continue to be strong.” (Lennar Q3 2022 Earnings Call, 9/23/2022)

The Lennar Group said in response to the Fed it would slow new builds

Lennar Group told analysts the company was planning to “maintain our starts pace without building up excess inventory.” “Jon Jaffe — Co-Chief Executive Officer and Co-President: As Stuart noted, our operators use our dynamic pricing model to help them understand the timing of inventory as it moves through the construction process. This tool gives us visibility into sales pace and associated pricing by community and even by plan, allowing us to maintain our starts pace without building up excess inventory. Our inventory position at the end of the quarter was just over 500 completed unsold homes or 0.4 homes per community. Next, I want to discuss our land focus in the third quarter.” (Lennar Q3 2022 Earnings Call, 9/23/2022)

The Lennar Group predicted institutional investors would buy more homes for single family rentals as the market weakened

Lennar Group predicted that institutional investors would move into the housing market to buy single family rentals as housing prices declined. “Stuart Miller — Executive Chairman: Great. I’m going to ask Rick to jump in after. I’m going to give a first comment and say that I do believe that single-family for rent is going to continue to grow and be a meaningful part of the housing market. I’ve learned over the years that SFR has always been a part of the market more dominated by the mom-and-pop participants. Now it’s been professionalized, and more institutional buyers are a significant part of the market. But that part of the market has pulled back as interest rates have gone up, as prices have come down and it has moderated. So it is still a very small part of our production and our sales program overall. And I have no question that as prices moderate, the SFR business will push in and become more of a significant part of the recovery.” (Lennar Q3 2022 Earnings Call, 9/23/2022)

Lennar Group’s Co-CEO predicted ongoing investments in single family rentals, noting that while “some of the investment in that space has slowed down, but rents are continuing to maintain.” “Rick Beckwitt — Co-Chief Executive Officer and Co-President: Yes. Stuart, as you mentioned, as rates have risen, several of the SFR players use leverage that’s floating in order to underwrite and finance their deals. Accordingly, some of the investment in that space has slowed down, but rents are continuing to maintain. And as a result, they’ll get — they’ll ultimately get their embedded yields that they’re looking for. For us as a company, we had about 1,000 homes that we sold to the single-family rental space in the last quarter. It’s probably underestimated because there were some additional sales in our communities that other folks are investing in and renting that aren’t captured in that number. But it was about 1,000, and our SFR program itself was a little bit more than 700 during the quarter.” (Lennar Q3 2022 Earnings Call, 9/23/2022)

Lennar stressed to analysts that the company was benefitting from the housing shortage

Lennar’s Executive Chairman: “the housing supply shortage, especially workforce housing discussed by every mayor and every governor across the country, continues to drive customers to stretch their wallet as incentives and price reductions have worked to meet purchasers halfway.” “Stuart Miller — Executive Chairman: And the fact that we are projecting a flattish number of deliveries in 2023 versus 2022 displays the strength of our strategy. Interest rates have continued to be the primary headwind to sales activity as inflation concerns have dominated the Federal Reserve’s actions to date. At the same time, the housing supply shortage, especially workforce housing discussed by every mayor and every governor across the country, continues to drive customers to stretch their wallets as incentives and price reductions have worked to meet purchasers halfway. Additionally, interest rates have also sidelined the professional or institutional purchasers.” (Lennar Q1 2023 Earnings Call, 3/15/2023)

Lennar’s Executive Chairman: “As I have said many times in the past, the overall housing shortage remains a dominant theme…This shortage should be a stabilizing factor for the housing market over time.” Stuart Miller — Executive Chairman: As I have said many times in the past, the overall housing shortage remains a dominant theme and is defined by a decade-long production deficit in the country after the Great Recession. This deficit will be exacerbated by a growing reduction in housing starts of both single-family and multifamily homes brought on by the current housing recession. This shortage should be a stabilizing factor for the housing market over time. Against this backdrop, we’ve remained steadfast in our adherence to the strategies we adopted as the Fed began its tightening program approximately one year ago.” (Lennar Q1 2023 Earnings Call, 3/15/2023)

Lennar’s Executive Chairman: “On a positive note, very limited new home inventory exists.” “Stuart Miller — Executive Chairman: While our new orders were down some 10% year over year, that result has compared favorably to reported market conditions and enabled us to maintain a strong start pace that enables us to increase our expected closings for the year to a range of 62,000 to 66,000 homes delivered. On a positive note, very limited new home inventory exists. Limited existing home supply exists as existing homeowners hold on to extremely low mortgage rates and very limited multifamily production, combined with the chronic housing production shortfall over the past decade and leads the industry in the middle of what we believe will be a fairly short duration correction without an inventory overhang to resolve. These factors will also extend the runway for longer-term housing growth as the correction develops.” (Lennar Q1 2023 Earnings Call, 3/15/2023)

Lennar told analysts it was focused on “generating cash” while “rightsizing” their construction 

Lennar’s Executive Chairman: “We’re going to be focused on generating cash, paying down debt, buying back stock where opportunistically we can and should.” “Stuart Miller — Executive Chairman: So, Susan, let me say emphatically that our primary focus is on organic growth. We are not really looking outside at strategic opportunities and being opportunistic in a kind of traditional sense. We are — and I said this many times before, are focused on being a best-of-breed homebuilder, and manufacturer, with an asset-light program. We’re going to be focused on generating cash, paying down debt, buying back stock where opportunistically we can and should.” (Lennar Q1 2023 Earnings Call, 3/15/2023)

Lennar’s Executive Chairman said the company was working with “our trade partners to rightsize our construction — our cost structure to current market conditions.” Stuart Miller — Executive Chairman:
“Our second strategy was to work with our trade partners to rightsize our construction — our cost structure to current market conditions while we reestablished cycle time at pre-supply chain crisis levels. Jon will cover this in great detail shortly, but at a high level, we continue to make meaningful progress with our trade partners as they appreciate our long-term strategy of maintaining consistent production. Relative to construction costs, Lennar led the way with reducing — with a reduction in margin while maintaining volume and increasing market share as the market has corrected. As our margins have now contracted, we are driving cost-reduction participation from our trade partners.” (Lennar Q1 2023 Earnings Call, 3/15/2023)

Lennar’s CEO told analysts that their average sale price actually increased thanks to “incentive reductions.” “Rick Beckwitt — Co-Chief Executive Officer and Co-President: So, as I said in my comments, most of the price increase between Q4 and Q1 was really a mix of products with some incentive reductions. So, that was the primary impact between Q4 and Q1. As far as the percentage of communities, not sure we have that right now. Not specifically.” (Lennar Q1 2023 Earnings Call, 3/15/2023)

Lennar noted interest rate hikes and banking failures were making the home-for-rent sector less attractive 

Lennar claimed higher interest rates had “sidelined” large investor purchases of homes and made “single family for rent” less attractive.” “Stuart Miller — Executive Chairman: Additionally, interest rates have also sidelined the professional or institutional purchasers. Higher capital costs, together with higher capitalization rates, have made the purchase of single-family for-rent homes less financially attractive as well. With that said, we still believe that housing — that the housing market is beginning to find a point of stabilization, and customers, both primary and institutional, are coming to grips with the new normal of higher but acceptable interest rates. The sudden sticker shock of rapidly rising interest rates in 2022 has mellowed.” (Lennar Q1 2023 Earnings Call, 3/15/2023)

Lennar called community and regional banking a “support structure for the broader housing market” and said the crisis would impact homes for rent sales. “Stuart Miller — Executive Chairman: I used the words unintended consequences. There are so many of them just swirling around out there. And I’m not sure how they’re going to shake out. You’re absolutely right that the community banking and regional banking system is a support structure for the broader housing market, whether it’s the smaller builders or all the way through the system. The SFR buyers are going to feel the ripple of not only the cost of capital but also capitalization rates. There’s going to be movement upward; there’s going to be movement downward. And how it shakes out is going to be something that we’ll be very tuned to. But the landscape is going to shift. Unintended consequences are not — we’re not going to be able to see around those corners. And I think we’ve seen that in many ways over just the past few days.” (Lennar Q1 2023 Earnings Call, 3/15/2023)

Lennar’s Executive Chairman specified that sales of mortgages did not depend on regional banks and that insurance companies were looking to become buyers of mortgage products. “Stuart Miller — Executive Chairman: Yeah, let me also say that capital markets are pretty fluid, especially around established products like mortgage products. There’s more than the regional banks. Some insurance companies are starting to look at some of these spaces. And I think we have a high degree of confidence that we’ll be able to fill any voids that temporarily show up.” (Lennar Q1 2023 Earnings Call, 3/15/2023)