Lennar (LEN 2.67%) shares are surging on news that the giant homebuilder is about to propose a massive homebuilding plan to the Trump administration that will help address the home affordability crisis in the U.S. According to a report by Bloomberg, several home construction companies, including Lennar, are putting together a plan to build as many as 1 million entry-level homes across the country.
News of the plan sent Lennar's stock sharply higher on Tuesday, up 7.5% in morning trading before settling back a bit. As I write this, the stock is up almost 4% on the day.
NYSE: LEN
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Details of how the home construction plan would work are not yet final, but initial reports suggest it might center on a rent-to-own business model in which private investors would underwrite the homes' construction and then rent them to tenants. And after a certain period -- possibly three years -- a tenant's rent payments could be counted toward a down payment if they choose to purchase the home.
It appears the plan might need the backing of the White House because government-backed mortgages, possibly through Fannie Mae or Freddy Mac, might play a part in the plan. In addition, the federal government has many other levers it could pull to make such a plan viable, from oversight to regulatory reform.
Source: Getty Images.
Housing affordability is a real problem in the U.S.
Economists point to several causes for the crisis in housing affordability, from government policies that have restricted new building and housing supply to slower wage growth that has suppressed demand. From 2000 to 2024, house price growth far surpassed median income growth in the U.S., according to the Federal Reserve. And home prices rose 50% from before the pandemic through last November.
The Trump administration has been looking for ways to make housing -- along with consumer goods more broadly -- more affordable. There's not much evidence it has succeeded yet. It hasn't helped that, despite several rate cuts by the Fed over the past year, the 30-year fixed mortgage rate remains above 6%, far above the 2.8% level of five years ago. Mortgage rates are more closely tied to the 10-year yield on Treasury securities, and those rates take into account many more economic factors than the Fed's target interest rate.
The housing market has been in a slump for years, which is certainly a sore point for many Americans. If the president can attach himself to a successful plan to make homes more affordable, he might benefit in upcoming mid-term elections. That's why I think a plan like Lennar's could eventually work, and that could make an investment in the homebuilder a smart move right now.
