Lennar Sales Miss Estimates on weak Housing Demand | Financial Buzz

Lennar Sales Miss Estimates on weak Housing Demand

Lennar Corp. (NYSE: LEN) reported lower-than-expected quarterly home sales and orders on Wednesday, confirming concerns that the U.S. housing market is slowing in the face of higher interest rates and rising prices after years of robust growth.

The Company also put off giving a forecast for 2019 citing “continued softness and uncertainty” in the housing market.

Rising labor and raw material costs have led builders to increase home prices. This combined with higher interest rates, led some homebuyers to defer their purchases.

“We remain cautious on the homebuilding stocks given our outlook for a fairly tepid recovery in housing starts to continue in 2019, along with moderating builder fundamentals over the next two years,” J.P.Morgan analyst Michael Rehaut said.

The Miami-based company joins a host of other builders that have warned of weakening demand. In November, larger home-builder D.R.Horton (NYSE: DHI) forecast weak home sales for the first quarter of fiscal 2019 and did not provide any details of its sales and profit expectations for the year.

While earnings doubled in the fourth quarter, Lennar has already felt the pressure from a slowdown in the housing market as the higher mortgage rates continue to weigh on buyer confidence. Home values in November 2018 were 5.1 percent higher compared with November 2017.

“We continued to experience slower sales due to higher home prices and rising mortgage rates. We continue to believe that the housing market is adjusting to a temporary disconnect between sales prices and buyer expectations and that the basic underlying fundamentals of low unemployment, higher wages and low inventory levels remain favorable,” Lennar’s Chief Executive Officer Stuart Miller said in the release.

Lennar reported net earnings of USD 796.1 Million in the fourth quarter, compared to USD 309.6 million in the prior year. Excluding items, Lennar earned USD 1.96 per share. Total revenue rose 70.6% to USD 6.46 Billion. Analysts on average had expected revenue of USD 6.53 Billion and earnings per share of USD 1.92.

“As rates have started to ease, we have seen traffic pickup,” Miller said in an earnings call on Wednesday. “Therefore we continue to believe the market has taken a natural pause. It will adjust and re-calibrate and demand driven by fundamental economic strength will resume.”