Lennar has had to be aggressive in pricing in Tampa Bay — and buyers are responding
By Brian Bandell
Tampa Bay Business Journal
Published: Mar 16, 2023

Lennar Corp. sold more homes in its fiscal first quarter, despite a national slowdown in home sales, as the company lowered prices and offered incentives to keep buyers closing.

Stuart Miller, executive chairman of the Miami-based homebuilder, said the housing market is facing rising volatility amid interest rate hikes that have made homes more expensive for buyers. The housing market is still looking for a bottom and price stability, he said. Miller believes buyers will eventually recognize the new normal, that higher rates are here to stay.

“This is exactly the kind of volatility we are built to endure,” Miller said during a conference call with investors. “If market conditions deteriorate, we will compromise [profit] margins through price cuts or incentives but still generate strong cash flow.”

Earlier this month, Lennar (NYSE: LEN) said it s planning a 2,100-home master-planned community in Manatee County. It is officially selling homes in Prosperity Lakes in Parrish. Prosperity Lakes is over 1,000 acres, and Lennar says it will offer 31 different floor plans within the community.

Lennar uses a “dynamic pricing model” to adjust home prices and incentives daily in order to keep homes selling. It also offers mortgage rate buydowns – a cash payment upfront to reduce the interest rate of the loan – to make loans more affordable for buyers. Lennar co-President and co-CEO Jon Jaffe said mortgage rate buydowns prevented many buyers from canceling as interest rates increased in recent months.

Its home order cancelation rate in the first fiscal quarter was 21%, up from 10% in the same quarter a year ago. Yet, that was improved from a 28% cancelation rate in the fiscal fourth quarter.

Unlike in previous quarters, Lennar has achieved solid sales volume in all of its regional markets around the country, and there are no markets where it’s hasn’t lowered prices enough to achieve good volume, said Rick Beckwitt, co-president and co-CEO of Lennar.

There were 10 markets performing well with extremely low inventory, normalized sales incentives and mortgage rate buydowns, and only rare price adjustments: Tampa Bay, Southeast Florida, Palm Beaches/Treasure Coast, Southwest Florida, New Jersey, Philadelphia, Charlotte, Coastal Carolinas, Indianapolis, and San Diego.

Beckwitt said the other 29 markets in which Lennar operates had experienced more aggressive financing programs and incentives in order to generate sales volume. Those markets include Orlando, Jacksonville, all of Texas, most of California, the Pacific Northwest, Arizona, Colorado, northern Alabama, Chicago, Minnesota, Milwaukee, and Raleigh, North Carolina.

“We sacrificed gross [profit] margins to generate sales,” Beckwitt said.

Lennar posted $597 million in net income for the quarter ended Feb. 28, up from $504 million in the same period a year ago. Its revenue increased 5% to $6.5 billion. However, its operating earnings from homebuilding fell 17% to $907 million as its net profit margin per home sale decreased 560 basis points to 13.8%.

Lennar delivered 9% more homes during the quarter for a total of 13,659. Yet, its new orders slid 10% to 14,194.

The average price of its home sold in the quarter was $448,000, down from $457,000 a year earlier.

Jaffe noted that national home sales across the industry were down much lower than at Lennar. The good news from this homebuilding slowdown is it should improve the availability of construction labor and homebuilding materials, he said. Because of this, Jaffe expects to complete home construction faster and at lower costs in the second half of this year. Still, it takes about two months longer to build a home than before the Covid-19 pandemic started, he added.

Lennar will continue seeking land for new communities, as it expects to increase its number of communities in the high single digits this year, Beckwitt said. Yet, Miller cautioned the company would not overpay for land and it wouldn’t hesitate to walk away from land deals with prices that don’t reflect today’s home values.

“Land value is a residual of what the land can be used for, so it’s relative to the sales price of the home,” Miller said. “What makes it sticky is some landowners might feel home prices will bounce back and the old residual value might come back. …We will not buy land that will put us underwater.”