Lennar

Housing

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)