A normalizing housing market contributed to strong results in the second quarter, ended May 31, for Lennar, the second largest company on the 2023 BUILDER 100 list.
“During the quarter, we continued to see the housing market normalize and recover from the Fed’s 2022 aggressive interest rate hikes in response to elevated inflation,” executive chairman Stuart Miller said. “As consumers have come to accept a ‘new normal’ range for interest rates, demand has accelerated, leaving the market to reconcile the chronic supply shortage derived from over a decade of production deficit.”
Lennar’s strategy of pricing to market and meeting demand with affordable pricing and incentives helped the builder deliver second quarter earnings of $872 million, compared with $1.3 billion in the prior-year period.
“While our average sales price per home delivered was $449,000 in the second quarter, compared to almost $500,000 at the peak last year, our home deliveries were 17,074, up 3%, and our new orders were 17,885, up 1%, year over year,” Miller said.
Lennar delivered second quarter profits per share ($2.94) and revenue figures ($8 billion) during the quarter that significantly outperformed analyst expectations. Quarterly revenue was lower than the second quarter of 2022 primarily due to the 7% decrease in average sales price, according to the builder.
Gross margins on home sales in the second quarter were $1.7 billion, or 22.5%, down from $2.4 billion, or 29.5%, in the second quarter of 2022. Lennar says gross margin decreased because revenues per square foot fell as the company priced homes to market and costs per square foot increased due to higher material and labor costs.
Lennar’s quarterly starts and sales pace were 5.3 homes and 4.8 homes per community, respectively, and the builder ended the quarter with approximately 1,300 completed, unsold homes.
“During the quarter, consistent with our strategy of cost control and cycle time reduction, our home building machine continued to be intensely focused on carefully managing production,” Jon Jaffe, co-CEO and co-president, said. “Our cycle time during the quarter was down slightly sequentially, and we believe it will decline further in the back half of the year as the improving supply chain and labor market will positively impact our production times.”
At the end of the second quarter, Lennar’s community count was 1,263, 3% higher than the second quarter of 2022. The builder’s years of supply of owned homesites improved to 1.7 years from 2.4 years, and its controlled homesite percentage increased 200 basis points to 70%.
“Interest rates appear to have settled into a fairly steady, yet higher range, with the consumer digesting the current housing market, as evidenced by the strong spring selling season,” Miller said. “As we always do, we are going to remain vigilant as the housing market continues to rebalance the interplay between short supply with strong demand.”
