U.S. homebuilder signals recovery

March 28, 2012 | Last updated on March 28, 2012
2 min read

There are signs of a recovery in the U.S. housing market, as homebuilder Lennar posted a first-quarter profit of 8 cents a share, well above analyst consensus of between 4 and 5 cents.

Despite the fact that its first-quarter profit dropped compared with results a year ago, America’s third-biggest homebuilder beat expectations as it delivered more homes and pulled in more orders.

The U.S. housing market garners a great deal of attention, as it was at the centre of the 2008 financial crisis. It is widely regarded as a bellwether for the U.S. economy, which has struggled to embark on a sustainable recovery.

Home deliveries increased 29% to 2,482, while new orders rose 33% to 3,022 homes—the strongest first-quarter sales since 2008.

While new homes represent less than one-fifth of the total housing market, home construction has a major impact on the economy since each new home creates an average of three jobs and generates $90,000 in taxes, according to the National Association of Home Builders.

Lennar sells homes for entry level and move-up buyers as well as retirees, and the company said Tuesday that the housing market is stabilizing due to low prices and low interest rates. This is an encouraging sign heading into the typically busy spring home-selling season.

CEO Stuart Miller said that the Miami company reported its strongest first-quarter homebuilding operating margins in six years and has been able to raise prices and reduce incentives in some of its communities.

“We have seen the market stabilize, driven by a combination of low home prices and low interest rates, making the decision to purchase a new home more attractive compared to the heated rental market,” he said.

The company said that its cancellation rate was at 18% in the quarter, while backlog climbed 39% to 2,711 homes.

Revenue for its Rialto Investments unit, which buys troubled loans and properties from banks, slipped to $32.2 million from $33.6 million, and KB Home, which builds homes to order, reported a smaller loss for its first quarter as revenue climbed last week.