Lennar and KB Home Point to a Housing Market Rebound

Macro numbers and homebuilders' earnings suggest that the US housing recovery is still going strong.

Jul 8, 2014 at 7:28PM

There are several ways to measure the strength of the housing market in the United States. One is to look at macroeconomic figures such as new home sales and existing home sales. These numbers often provide information about the bigger picture. Another way is to look at the earnings of companies that are active in the housing market, most notably homebuilders. Lennar Corporation (NYSE:LEN), one of the biggest homebuilders in the U.S., recently came out with its quarterly earnings report and had some interesting things to say about the market. In this article, we'll take a look at the macro figures, as well as earnings from Lennar and competitor KB Home (NYSE:KBH).

May housing numbers
The May home sales report was encouraging and allayed some fears of a significant slowdown after a few less-than-stellar monthly reports. Last month saw the highest rate of existing home sales in nearly three years with purchases rising 4.9% to an annualized rate of 4.89 million.

Perhaps more importantly for homebuilders, new home sales rose to a six-year high, up 18.6% to an adjusted annual sales rate of 504,000. At the same time, the increase in house prices slowed, which indicates that the recovery may be entering a more mature stage.

The slump in the housing market earlier this year now seems to have ended, according to some analysts, amid a steady improvement in jobs numbers and lower mortgage rates. The average rate on a 30-year, fixed-rate mortgage has declined to 4.17%, from 4.41% at the beginning of April. Sentiment among homebuilders is also improving, and the market appears to be rebounding from a weather-related low earlier this year, with residential construction expected to pick up this quarter.

Solid earnings
While Lennar's earnings were more or less flat year over year, its earnings per share of $0.61 soundly beat the $0.51 consensus estimate. Revenue shot up 27% to hit $1.82 billion, which also easily topped the $1.68 billion consensus. Deliveries were up 12%, and the average sales price of these homes rose by 14%. Lennar's management, which seemed to back the view that the housing market is steadily improving, had the following to say:

While the spring selling season was softer than anticipated by us and the investor community, the homebuilding recovery continued its progression at a slow and steady pace. The fundamentals of the homebuilding industry remain strong driven by high affordability levels, favorable monthly payment comparisons to rentals and overall supply shortages.

Other homebuilders also seem to be doing well. KB Home reported earnings before the bell on Friday which had investors fairly pleased. Revenue rose by 8% to $565 million, largely driven by a 10% increase in average selling price as the company delivered fewer homes than it did last year. Operating income soared to $34.3 million from $8.7 million a year ago. EPS of $0.27 per diluted share easily beat the $0.20 consensus and was up from a loss of $0.04 in the prior year.

The results from these two homebuilders seem to back the most recent macro figures in this instance. This suggests that the housing recovery remains intact, although it has slowed down to a steadier and perhaps more sustainable pace.

The bottom line
In the last few months, investors have been worried about the state of the US housing market because the macro figures weren't particularly encouraging. However, these fears may now prove to have been exaggerated, as housing seems to be coming out of a weather-related slump that occurred earlier in the year partially because of better affordability and an improving employment picture. Earnings from homebuilders such as Lennar and KB Home seem to confirm that the recovery remains ongoing, albeit at a somewhat slower pace.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Daniel James has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers