As one of the first to posts its third-quarter results, homebuilder Lennar’s tough quarter shed light on what will likely unfold in its rivals as well.
The homebuilder, according to an article in Reuters by Arunima Banerjee, cut its gross margin forecast for the fourth quarter due to rising land and labor costs.
Lennar expects gross margin of about 23.25% for the current quarter ending Nov. 30, down from its previous forecast of 23.5-24%, the article stated.
Banerjee noted that these problems that could weigh on rivals such as PulteGroup as well.
This isn’t the first report of labor shortages impacting the industry though. A previous article in Reuters stated that the National Association of Homebuilders estimates that there are about 200,000 unfilled jobs in the industry today after the housing crisis drove 30% of construction workers out of the industry.
And this wasn’t on the only negative news for Lennar. From the article:
Lennar also posted its slowest growth in orders - a key indicator of future revenue - in more than a year as it grapples with choppy demand for higher-priced homes in Houston, where the economy has been hit hard by a two-year downturn in oil prices.
"It's hard to grow operations efficiently and effectively at an accelerated rate in a market where land and labor is really constrained," Chief Executive Stuart Miller said on a conference call.
On the positive side, the article stated that the company reported higher-than-expected profit and revenue for the third quarter ended Aug. 31. But doesn’t compensate from the previous issues mentioned.
According to the article, the company's revenue rose 13.7% to $2.83 billion in the third quarter.
A report from ICE Data Services after the news came out stated, “Negative sentiment surrounding the sector is being exacerbated by quarterly results posted from Lennar Corp. this morning which beat consensus estimates for top and bottom lines but disappointed on its new orders growth rate, sending the company's stock price down -3% as of midday.”
Tuesday morning’s housing starts report does give a more positive forecast for the future of homebuilding. Capital Economics stated that it still thinks housing starts will resume its upward trend before the end of the year, concluding “2017 should prove a much better year for homebuilding than 2016.”