A resilient new-home market—benefiting from motivated buyers and a continued lack of resale inventory—buoyed a strong fiscal third quarter for Landsea Homes. The Texas-based builder experienced an 89% and 80% year-over-year increase in net new orders and absorption pace in the quarter, respectively.
“We saw active and engaged buyers in our communities throughout the quarter, though the upward movement in interest rates resulted in some selling softness as the quarter progressed,” Landsea Homes CEO John Ho said during the company’s earnings call. “Fortunately, we had several sales tools at our disposal that offset the impact of higher rates and gave consumers a sense of confidence when buying their home.”
In the third quarter, Landsea Homes generated adjusted net income of $11.7 million, or $0.30 per share, compared with $27.6 million, or $0.69 per share, in the prior-year period. Analysts projected Landsea Homes would record profits per share of $0.15 in the third quarter.
“We believe that our High-Performance Homes series gives us a distinct advantage over the competition, particularly with the large and growing millennial buyer segment,” Ho said. “We are also confident in our leadership team’s ability to execute well and compete in a high interest rate environment. As a result, we remain very optimistic about the future of Landsea Homes.”
The builder reported revenue of $277.3 million in the quarter, down 17.4% on a year-over-year basis. Landsea said the decline was driven by a 17.5% decrease in homes closed and a 4.2% decrease in average sales price. New homes delivered totaled 448 at an average sales price of $576,000, compared with 543 homes delivered at an average sales price of $601,000 in the third quarter of 2022.
Activity in the quarter was strongest for Landsea Homes in Southern California and Arizona, while Northern California continued to lag due to affordability issues and soft employment trends in the tech sector, according to president and chief operating officer Mike Forsum.
“Our ability to offer financing incentives was a key driver of demand during the quarter, as it allowed us to meet the affordability needs of our buyers,” Forsum said. “Most home shoppers are trying to solve for a monthly payment, and being able to adjust the rate associated with that payment is a big competitive advantage for home builders versus the existing-home market. It allows us to maintain base price stability in our communities as well.”
Net new-home orders in the quarter were 486 with an average sales price of $587,000, compared with 257 homes with an average sales price of $644,000 in the third quarter of 2022. The monthly absorption rate increased to 2.7 sales per active community from 1.5 in the prior-year period. As a percentage of gross orders, cancellations improved to 9% from 11% on a sequential basis. A year ago, Landsea’s cancellation rate was 37.8%.
“We also saw a significant improvement in building conditions in the third quarter, which led to better cycle times and an easing of cost pressures,” Ho said. “We believe the gains we’ve made on this front are sustainable and expect our cycle times to return to pre-COVID levels in the new year.”
Total backlog at the end of the quarter were 760 homes, with a value of $482.7 million and an average sales price of $635,000. A year ago, Landsea Homes had 1,285 homes in backlog with a dollar value of $741.1 million and an average sales price of $577,000.
Landsea Homes ended the quarter with 11,203 owned or controlled lots, compared with 12,410 lots at the end of the third quarter of 2022. The builder continues to pursue an asset-light strategy and, as such, controls 55% of its lots via options.
Colorado Expansion
During the call, Ho discussed the home builder’s recent acquisition of Richfield Homes, marking Landsea’s entrance into the Colorado housing market. He said the company plans to grow its presence by focusing on the more affordable segment in the market to achieve better local economies of scale.
“We believe this is the right recipe for success in this market and will continue to look for acquisition targets that fit this model,” Ho said. “With the rise in interest rates, we believe the opportunity to grow via acquisition will become more common.”
