Homebuilder Outlines 5 Themes for Housing

June 29, 2015

Homebuilding giant Lennar Corp. reported strong earnings for the second quarter, with a surge in sales and price. Lennar, the No. 2 builder by homes sold, reported an 18 percent increase in orders compared to a year earlier and an 8 percent rise in average sales price to $348,000. 

Lennar Corp.'s CEO believes these five major themes will drive the housing market in the coming months:

  • Tight inventories of homes for-sale
  • Stringent mortgage qualification standards
  • Millennials becoming a bigger force in home buying
  • First-time home buyers' return
  • The number of home builders decimated by the economic downturn. 

Additional building will depend on demand from first-time buyers, Stuart Miller, CEO of Lennar Corp., noted in a conference call with investors last week.

Tight mortgage qualification standards continue to keep some entry-level buyers out of the market. But millennials -- those born between the 1980s and 1990s -- are making up a larger percentage of the housing market. For now, many prefer to rent. As such, Lennar has been building rental complexes and constructed its first single-family, for-rent community in Nevada. 

"Credit limitations have been most constraining to the first-time buyers," Miller said. "Although that is beginning to open up, they are not yet jumping into the marketplace. And they are also most susceptible to price and interest-rate increases."

Homebuilders remain conservative when it comes to speculative construction and some homebuilders didn't survive the downturn. 

"A slow, steady recovery with limited land supply and limited access to capital constrains the number of smaller, less capitalized home builders," Miller said. "This has enabled the larger, better capitalized builders to pick up a larger portion of the smaller pie."

Source: "Lennar Chief’s 5 Themes for Housing," The Wall Street Journal (June 24, 2015)