Homebuilders Show Housing Recovery Hasn’t Crumbled Yet
The foundation for the housing recovery hasn’t been shaken by the threat of rising rates.
The proof ? That two of the nation’s largest homebuilders put up better-than-expected quarterly figures in a period when economists worried interest-rate concerns would sap the housing recovery’s strength.
Firstly, Lennar LEN -1.28% Corp., the largest U.S. homebuilder by market cap, says its profit rose to $120.7 million, 54 cents a share, from $87.1 million, 40 cents a share, a year earlier. Analysts predicted Lennar would earn 45 cents a share. Meanwhile, revenue jumped 45% to $1.6 billion, matching Wall Street predictions.
And KB Home, one of the smaller homebuilders concentrated mostly on the West Coast, reported a surge in profit: $27.3 million, 30 cents a share, from $3.3 million, 4 cents a share. It too beat Wall Street’s estimates, which called for 22 cents a share in earnings. Revenue shot up 29% to $549 million.
KB Home CEO Jeffrey Mezger described the housing recovery’s fundamentals as “firmly in place, supported by low inventory levels, an improving economy and positive demographic trends.” Even if mortgage costs do rise, Mezger says, the result would only be temporary. Similarly, Lennar CEO Stuart Miller admitted his company might see “bumps along the road that may impact the short-term pace of the recovery,” but he sees a long-term outlook that “remains extremely bright.”
Another welcome sign was the increase in home prices reported by the two homebuilders. KB Home said overall selling price rose 22% to $299,100, and it delivered 6% more homes. At Lennar, selling price rose 33% to $291,000, and homes delivered increased 37%.
In addition to KB Home and Lennar, other major U.S. homebuilders include D.R. Horton, the second largest by market cap, NVR Inc., and Standard Pacific.
The increase in housing prices and sales–strong signals that the recovery continues apace–was also reflected this morning in new economic data. According to the S&P/Case-Shiller composite index, home sales increased 0.6% in July, and prices rose 12.4%. The Case-Shiller surveys housing results in 20 metropolitan areas.