Dive Brief:
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Miami-based homebuilder Lennar Corp. expects the housing market to continue its slow and steady improvement despite a recent decision by the Federal Reserve to raise its benchmark interest rates and the in the midst of a significant presidential administration change.
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Speaking on a fourth-quarter conference call, Lennar CEO Stuart Miller said even with interest rates moving higher, first-time buyers should continue to come back into the market as the economy strengthens and rents increase.
- Lennar posted a fiscal fourth quarter profit of $313.5 million, up from $281.6 million a year ago. Revenue increased 14.6% year over year to $3.38 billion in the fourth quarter, due in part to continued home-price growth. The average price of a home delivered by the company rose 2.6% during the period to $358,000.
Dive Insight:
Lennar was the first homebuilder to discuss its earnings since the Fed announced its rate raise last week, offering some insight into the industry’s reaction to the move and how companies think its effect on the mortgage bond market will impact activity in the sector.
Lennar proved bullish in its call and, even considering the post-election spike in mortgage rates, it and other homebuilders continue to believe the market will be underpinned by healthy employment, wage growth and consumer confidence. Rising rents are also encouraging potential first-time buyers to build equity in a home instead.
Last week, credit rating agency Moody’s forecast revenue growth of more than 10% for the North American homebuilding industry in the next 12 to 18 months, while the December National Association of Home Builders/Wells Fargo Housing Market Index, a measure of builder confidence in the market’s potential, posted its highest reading since July 2005.
But government-backed lender Freddie Mac warned this week that the mortgage market could be “significantly subdued” next year if rates continue to rise.
Meanwhile, Lennar’s Miller said on the call that the company’s purchase of fellow Florida homebuilder WCI Communities will “fill in some blanks and partially offset land purchases.” The company is set to upgrade its land positions with already mature communities. Lennar announced a merger-acquisition deal with WCI Communities in September for $643 million.
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