Some of the largest U.S. homebuilders are cutting prices, offering discounts and pulling out of land deals. higher mortgage interest rates It continues to hit buyer affordability on top of already very high home prices.
Miami-based Lennar Corp. and Los Angeles-based KB Home both reported on Thursday that profits and revenue surged year-over-year, but higher interest rates cut new orders and slowed buyer traffic. .
Lennar’s profit increased 4% to $1.47 billion, while new orders nationwide fell 12% year-over-year to 4,366 units. KB Home made him $255.3 million, up 70% from the previous year, but orders were 3,137 units, down 30% from the previous year.
Stuart Miller, Executive Chairman of Lennar Corp., said: Weakening housing market This was to be expected as the Fed’s quick and aggressive response to inflation came too late, adding that the Fed’s use of interest rates to curb inflation had the desired effect on housing.
“Interest rate movements were very sudden and adjusted very quickly, and that suddenness always led to a decline in demand for housing,” Miller said. “Part of the pullback is due to simple affordability, and part of the pullback is caused by the shock of monthly payment stickers or the psychology of sudden and aggressive interest rate hikes that create the feeling of missing the boat. increase.”
New orders for Lennar homes in 217 active communities in Texas fell from 3,203 in Q3 2021 to 2,577 in the previous quarter.
Builders classified cities into three tiers based on their current level of performance. Dallas, Houston and San Antonio are he one of the 23 markets in Phase 2. This includes areas where lower traffic and higher cancellations have forced builders to adjust prices and incentives more than others to regain momentum.
Lennar co-CEO Richard Beckwitt said:
Lennar puts Austin in the worst category as one of the seven markets that saw the most significant softening and correction.
“Even with lower prices and higher incentives, demand is still there,” says Miller. “Buyers still have jobs and downpayments, have attractive credit scores and can qualify, so demand remains fairly strong with adjusted prices.”
KB Homes, which are being built in 47 markets across the country, including Dallas-Fort Worth, have already seen orders soften due to the recent surge in mortgage rates since Labor Day. The cancellation rate, or the volume of deals that failed after signing a contract, was 35% last quarter, compared to 9% in 2021.
KB Home Chairman, President and CEO Jeffrey Mezger said: “It’s not that the buyers weren’t qualified. They weren’t comfortable going forward with the purchase.”
KB Home was under-delivered than expected due to longer build times and ongoing supply chain challenges. The builder completed his 3,615 homes in the US last quarter and has a backlog of his 10,700 homes due for delivery in the next three quarters.
Robert McGibney, chief operating officer of KB Home, said he completed homes that missed deliveries in the second quarter because utilities couldn’t get transformers and electricity meters, and had difficulty getting switchgear and power lines. I said there was a delay. He used Houston as an example, where 77 homes across three communities were completed and were due to close in the third quarter, but were postponed due to a shortage of transformers.
“We are focused on what we can control and are optimistic that when most markets start to slow down and scale, we will be able to get back to our previous build times, but this takes time,” said McGibney.
KB Home invested only $135 million in new land acquisitions, down 71% from $467 million a year earlier. Chief Financial Officer Jeff Kaminsky said the company is moving toward a more selective land investment strategy.
In addition, the company abandoned approximately 8,800 lots it previously managed during the quarter. In some cases, land sellers refused to cut prices because other builders were waiting, Mezger said. Other sellers were in price points or regions that didn’t generate enough profit.
“We’re doing everything we can to maintain these positions, but if it doesn’t make sense, we’re ready to walk,” he said.
Lennar also left 10,000 home sites last quarter alone. Lennar Corp. co-chief executive Jonathan Jaffe said the company is focused on “re-evaluating all land deals in the pipeline” throughout the quarter.
arlington base DR Horton reported sharp drop in demand in July in the second quarter. Pennsylvania-based Toll Brothers, the largest U.S. luxury builders, also said in his August: We lowered our annual sales forecast and increased buyer incentives.
said Ben Caballero, Founder and CEO of Dallas-based . HomesUSA.comis a realtor who lists homes on the Real Estate Association’s Multiple Listing Service on behalf of builders. His company has seen a huge influx of business from builders who need to bring homes to the public after cancellations began to spike earlier this year.
Caballero said builders are increasing fees to realtors, in addition to offering various incentives to buyers, as a sign of waning demand.
“The idea is that if you’re giving a realtor a $5,000 or $10,000 bonus, they’re going to bring the client to them, not someone else,” he said. .