World Stock Watch

Housing Market Woes: Lennar Corp’s Disappointing Q4 Earnings

The US housing market’s struggles continue, with Lennar Corp’s fourth-quarter earnings falling short of Wall Street estimates. The company’s shares plummeted 9% in premarket trading on Thursday, as potential homebuyers remain hesitant due to volatile mortgage rates.

Mortgage Rates Take a Toll

The 30-year fixed mortgage rate, which tracks the benchmark 10-year Treasury note, has seen a significant surge since the US presidential election. This increase has made it even more challenging for first-time homebuyers to enter the market. According to a Reuters poll, experts predict that purchasing affordability will worsen over the next year, despite a slowdown in average home price increases.

Lennar’s Q4 Performance

Lennar Corp, the second-largest US homebuilder by sales, reported adjusted earnings of $4.06 per share, below analysts’ estimates of $4.16 per share. The company’s revenue also fell short, reaching $9.95 billion compared to the expected $10.08 billion. Lennar’s co-CEO Stuart Miller attributed the disappointing results to “affordability limitations from higher interest rates.”

Shifting Market Dynamics

Lennar’s average sales price dropped to $430,000, down from $441,000 the previous year. This decrease is largely due to the increased use of incentives and a changing product mix. The company expects to deliver 17,000 to 17,500 homes in the first quarter of 2025, a significant decrease from the 22,206 homes delivered in the fourth quarter.

Gross Margins Take a Hit

Lennar’s home sales gross margins fell to 22.1% in the quarter, compared to 24.2% the previous year. This decline is a clear indication of the challenges the company faces in the current market.

A Challenging Road Ahead

As the US housing market continues to struggle, Lennar Corp and its peers will need to adapt to the new reality of higher mortgage rates and decreased affordability. With experts predicting a worsening purchasing environment, it remains to be seen how the industry will respond to these challenges.