America's second-largest home builder, Lennar (NYSE:LEN), reported higher-than-expected first-quarter earnings last week.
In this clip from the Motley Fool Money radio show, Chris Hill, James Early, and Ron Gross talk about how despite their bad reputation, millennials are to thank for a significant percentage of Lennar's sales. But does the shadow of the last market collapse still loom over the homebuilder's decision-making?
A transcript follows the video.
This podcast was recorded on April 1, 2016.
Chris Hill: Let's get to some of the company news of the week. Lennar is America's second-largest home builder. First quarter profits came in higher than expected, and shares up this week. Looked like a pretty good report on the surface, James.
James Early: You know, Chris, I keep reading all these articles about millennials, that they're little tyrants in the workforce and they're difficult to manage, but I have to give them credit: They're gainfully employed, and they're buying houses. And this was a big driver here. First-time home buyers were 30% of Lennar's customers, which is a big number. Average selling price rose 12% year-over-year. The issue was basically low supply. I mean, demand was good, but there was also low supply. In other words, we've finally absorbed all the foreclosed homes, and now these young people are out there buying homes again. I don't think it's a bubble in the making, but it's just an issue of the cycles evening out now.
Ron Gross: And mortgage rates, which were historically low for quite some time, had ticked up a bit, but they're back down.
Gross: It's a wonderful time to borrow money to buy a home, and you get that nice deduction as well. So, it'll be interesting to see -- we just talked about the Fed and rising interest rates. As those tick up, what does that do to the first-time home buyers?
Hill: Do you get the sense that Lennar and some of the other home builders are maybe making business decisions based on what happened in 2008, 2009? Are they being a little bit more cautious, at least in terms of their forecasting?
Early: Whatever they're doing, it's working. The S&P is up 100-something percent since the low point of 2009. Lennar stock is up 600%. So, it's effective, whatever their strategy has been.