Lennar Profits Plunge as Mortgage Rates Exceed 7%

Homebuilder Lennar reported a sharp decline in third-quarter profit, which fell to $283.9 million from nearly $591 million the previous year. Total revenue for the quarter ended August 31 decreased over 8% to $8.05 billion, missing Wall Street forecasts of $8.31 billion. Adjusted earnings reached $1.23 per share, falling short of the $1.29 estimate.

CEO Stuart Miller attributed the results to a challenging economic environment where 30-year mortgage rates exceeded 7%, creating an affordability crunch. Miller noted that inflation remained above the Federal Reserve's target, driven by higher oil prices and geopolitical tensions related to the U.S.-led war with Iran. This market weakness forced the company to increase incentives to move inventory, and gross margins fell to 15.8% from 17.5% year-over-year.

Financial analysts responded with caution. Raymond James reiterated an Underperform rating and lowered earnings per share estimates, noting that nearly 50% of Lennar's community visitors cannot qualify for purchases without further price adjustments. While Lennar reduced construction costs per foot by 6% and cut finished unsold homes by 11%, analysts noted that lot cost inflation from landbanking partnerships continues to hinder margin improvement. Truist Securities and Manchester City F.C. maintained Hold and Market Perform ratings, respectively.