Homebuilder Lennar sees 'no disruption' in lending unit amid bank failures
Homebuilder Lennar (LEN) said Wednesday it is seeing "no disruption" to its mortgage lending business in the wake of recent bank failures and the resulting turmoil in financial markets.
"With respect to sales of loans to investors, we have the agencies that we sell to and other parties that are not regional banks," said Bruce Gross, CEO of Lennar Financial Services, on the company's earnings call Wednesday. "We're paying very close attention to that, but no disruption," Gross added.
The recent fallout from the failure of Silicon Valley Bank and Signature Bank within the last week has rattled financial markets, sending mortgage rates downward as investors seek the relative safety of Treasury bonds and price in less aggressive rate hikes from the Federal Reserve.
And while concerns over the stability of financial markets have shaken investors, some homebuyers are capitalizing on the sudden drop in rates.
The volume of mortgage applications increased for the second straight week last week, climbing 6.5% on a seasonally adjusted basis during the week ended March 10, the Mortgage Bankers Association's survey reported Wednesday.
Data from the NAHB out Wednesday also showed home builder confidence continues to rise. Still, NAHB chairman Alicia Huey said, "given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook."
"This is an experienced team that's been through the financial crisis back in 2008 and '09," Gross said. "So we have the playbook and we've reacted very quickly, and we feel very comfortable."
'A generally strong economy'
Lennar's first quarter earnings report released Tuesday after the bell beat expectations on the top and bottom lines.
Adjusted earnings per share came in at $2.12, beating the $1.54 expected by analysts, according to estimates from Bloomberg. Revenue in the quarter totaled $6.49 billion, better than the $5.99 billion expected by analysts.
The homebuilder said new home orders dipped 19% to 14,194 homes for the three months ending Feb. 28, better than the estimated 12,640 purchase contracts the company was forecasted to sign. Lennar's orders totaled $6.4 billion in value.
The company delivered 13,659 homes, up 9% over last year, and above the 12,000-13,500 homes the company had expected to deliver. The homebuilder also worked through its backlog of homes for sale, which fell 29% during the quarter to 19,403 homes.
"During the quarter, we saw a generally strong economy at the intersection of high inflation and strong employment numbers, while the housing market continued down a winding road of trying to find its footing," Stuart Miller, Executive Chairman of Lennar, wrote in the company's earnings release.
Miller noted on the earnings call on Wednesday that when the quarter started in December, traffic and sales were stalled and only moved through offering incentives and price adjustments.
By January, the slide in interest rates led to an "energized customer" and improved margins.
"Homebuyers are considering the possibility that today's interest rate environment may be the new normal," Miller added. "Accordingly, the housing market continues shifting as growing household and family formation continued to drive demand against a chronic supply shortage."
The Miami-based homebuilder expects new orders in Q2 to range from 16,000-17,000 homes, with the average sales price to come in between $435,000-$445,000.
The company also intends to target delivery volume for the full year between 62,000-66,000 homes, with gross margins expected to be in a range of 21%-21.5% for Q2.
Nationally, there continues to be a pullback in the pace of home construction. Housing starts fell 4.5% in the first month of the year to an annualized rate of 1.31 million homes, down 21.4% from January 2022 levels, the Commerce Department said Feb. 16.
Building permits increased by 0.1% to a 1.34 million annualized rate, down 27% from the same month in 2022.
Lennar sees a benefit to the drop in housing starts and permits in that this will "free up the availability of labor and material," and enables the homebuilder "to keep our production machine moving forward with starts," said Jonathan Jaffe, Lennar's co-CEO.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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