Lennar CEO: “Disappointing” single-family housing starts will rebound soon

Beats earnings predictions, hopeful for spring

Homebuilder Lennar Corporation (LEN) reported results for its first quarter, beating earnings expectations despite difficult weather situations and tough housing markets.  

First-quarter net earnings increased to $115.0 million, or $0.50 per diluted share, compared to first-quarter net earnings of $78.1 million, or $0.35 per diluted share, a year ago.

"Despite severe weather conditions which constrained production and sales in parts of the country, the housing market continued its slow and steady recovery. Early signals from this year's spring selling season indicate that the housing market is improving, and disappointing single family starts and permits numbers should rebound shortly. The sizable production deficit of the past years continues to drive demand improvement in spite of the constrained mortgage market," said Stuart Miller, CEO of Lennar Corporation.

This is $0.05 better than the Capital IQ consensus estimate of $0.45, according to

Revenues from home sales increased 23% in the first quarter of 2015 to $1.4 billion from $1.1 billion in the first quarter of 2014. The increase was primarily driven by a 20% increase in the number of home deliveries, excluding unconsolidated entities, and a 3% increase in the average sales price of homes delivered.

According to a Lennar earnings preview from Sterne Agee analyst Jay McCanless, there is potential in the homebuilder’s recent launch into the single family for lease business.

In March, Lennar opened its first single family for-lease community in the Reno, Nevada, suburb of Sparks, which is projected to be a strong business venture given the difficult mortgage-lending environment, according to McCanless.

Mortgage lending is still tight for borrowers with less than pristine credit causing a greater demand for renting, which Lennar could capture, McCanless explained.

This was given a little more attention in the builder’s earnings Thursday, but the brunt of the impact of its new business ventures will likely not be seem until later this year.  

“As an offshoot of the constraint in the mortgage market, rental rates have continued to rise across the country, benefiting our extensive pipeline of rental properties. Rental demand has continued to outpace ‘for sale’ demand, and we expect our maturing rental business to contribute to earnings in the latter part of the year,” Miller said. 

However, looking at the latest housing starts, the problem could go beyond just bad weather.

Privately owned housing starts in February plummeted 17%, down to an annualized 897,000 from the revised January estimate of 1,081,000, with drops in the Northeast, Midwest and West leading the collapse.

Some looked at the weather as the primary culprit despite the big drop in the West region, but now thoughts are turning to other factors like whether there’s a skilled labor shortage, or whether younger buyers are still staying on the sidelines.

“The housing market had a slow quarter mostly due to the intense winter in the Northeast slowing home buying there. That activity will snap back and create a stronger than usual demand in the spring,” said Jeff Taylor, managing partner at Digital Risk. “That said, most of the reason for the lower issuance numbers to this point is actually structural, not weather-driven.

“An underlying trend we observe is that the expected millennial-led boom isn't happening, Taylor said. “There a constriction in supply that has driven up prices in urban areas where millennials most want to own housing.”

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