Jim Caulfield EVP, General Counsel | realtors.com
Lennar, one of the country’s largest homebuilders, reported a 6% drop in its average home sales price last quarter compared to the previous year, as it aimed to offer more affordable options to homebuyers.
In an earnings report on Thursday, Lennar stated that the average sales price of homes it delivered was $422,000 for the three months ending August 31, compared with $448,000 in the same period last year. The price reduction was primarily attributed to increased buyer incentives and a shift to smaller floor plans.
The Miami-based company compensated for the price cuts through higher sales volume. Home deliveries rose 16% from last year, reaching 21,516 homes delivered in the quarter. Quarterly revenue from home sales increased by 9% year-over-year to $9 billion.
Lennar CEO Stuart Miller commented that the company’s results were “backed by an economic environment that remains very constructive for homebuilders.”
“Employment was strong, housing supply remained chronically short due to production deficits of over a decade, and demand was solid driven by strong household formation. Although affordability continued to be tested during the quarter, purchasers remained responsive to increased sales incentives,” he said.
With record-high home prices, homebuilders have increasingly used buyer incentives such as mortgage rate buy-downs, price reductions, and credits for closing costs to attract buyers concerned about affordability. Builders have also focused on smaller houses that are more attainable for first-time buyers.
As a result, new-home prices have recently become much more competitive compared to previously owned homes. For a period this spring, the median price for new homes fell below that of existing homes, reversing a longstanding trend.
In July, the most recent available month for comparison, the median sales price for new homes was $429,000, slightly higher than the $421,400 median for existing homes that month. Compared with five years earlier, new-home prices were up 39%, while existing-home prices were up 50%.
In addition to high prices, homebuyers have faced a limited supply of homes for sale. Freddie Mac estimates that at least 1.5 million additional housing units are needed nationwide to address a chronic shortfall.
“The well-documented chronic housing shortage is a result of years of underproduction,” Miller said Friday on a call with investors. “This shortage has been exacerbated by continuing shortfalls in production driven by restrictive land permitting and higher impact fees at local levels and higher construction costs across the housing landscape.”
Lennar projects its home deliveries for fiscal year 2024 will total about 80,500 to 90,000. The company anticipates its average home price in the current quarter will be around $425,000.
On Wednesday, the Federal Reserve cut its benchmark interest rate by half a point—a widely anticipated move that has already led mortgage rates lower in recent months. The average rate on 30-year fixed mortgages was 6.09% for the week ending September 19—the lowest since February 2023—according to Freddie Mac.
“Demand remains very strong and migration to lower interest rates will further activate that demand,” said Miller. “Lower interest rates will enhance affordability which will enable many more families to access and attain homeownership at entry level while growing families will be able to unlock value from existing homes enabling them to move up to more bedrooms and more living space.”
Shares of Lennar were down more than 4% in midday trading on Friday after the company’s projection of gross margins for the current quarter came in lower than Wall Street expected.
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