Higher mortgage rates have dampened home sales nationally—but, as the saying goes, all real estate is local.
the nation’s second largest builder by market capitalization, on Thursday listed the best and worst holding up housing markets.
The housebuilder was one of the two top earners this week for the quarter ending August 31.
(ticker: LEN) and the smaller builder
( KBH ) beat earnings-per-share estimates, but said orders fell as higher mortgage rates cut into buyers’ bottom lines.
“Home building is once again at the forefront of everything happening in the economy, and the Fed’s use of its interest rate tool to curb inflation is certainly having the desired effect on the housing market for sale,” Stuart Miller , Lennar. executive chairman, said on the company’s third quarter earnings call.
Lennar is adjusting prices and offering incentives to drive traffic, executives said. The company’s new net order sales price was 9% lower than the second quarter, but 1% higher than a year earlier, co-CEO Richard Beckwitt said on the call. During the third quarter, new order incentives increased to 6% in August from 2.3% in June, he said.
“As prices and incentives are reduced, the demand is still there,” Miller said. “These fundamentals reassure us that, while there is some short- and medium-term reconciliation, the long-term prospects for housing remain strong.”
Not all housing markets needed the same tough love. Beckwitt sorted housing markets into three categories: those that have consistently performed well, those where sales momentum increased after the company adjusted prices or incentives, and those that may need further adjustments price to drive sales.
Sales remained strong in nine areas, Beckwitt said. These include New Jersey; Maryland; Virginia; Charlotte, NC; Indianapolis; San Diego, California; and three markets of Florida: the southwest, the southeast, and the area around Palm Beach.
“These markets are benefiting from very low inventory, and many are benefiting from a strong local economy, job growth and immigration,” Beckwitt said, adding that Lennar offered mortgage buy-down programs and several incentives to maintain the sales pace. “Targeted price adjustments are required on a limited basis from some communities in these markets,” he said.
Most places fell into the second category. The company said it made “more significant adjustments to regain sales momentum” in more than 20 markets. Among them were some of the hottest markets of the pandemic housing boom, such as Phoenix, Dallas, and Tampa, Fla.
Other areas in this category included Orlando, Fla.; Jacksonville, Fla.; the coastal Carolinas; Atlanta; Chicago; Nashville; Raleigh, NC; Houston; San Antonio; Tucson, Ariz.; Las Vegas; Colorado; Seattle; and several parts of California, including the coast, the Inland Empire, the Bay Area, the Central Valley, and Sacramento.
Traffic has slowed in each of these markets, and cancellations have increased, Beckwitt said, adding that the company offered buyer benefits such as “aggressive” financing programs, price reductions, and increased incentives to sell. driving.
The company says buyer withdrawal was strongest in seven markets, including Boise, Idaho, where prices rose earlier in the pandemic amid lower rates and the work-from-home housing boom. “While the individual drivers and dynamics of these markets vary, traffic has slowed significantly,” Beckwitt said. Other markets in this category include Philadelphia; Pensacola, Fla.; Austin; Reno, Nev.; Minnesota; and Utah.
Many buyers in those markets “need to be convinced that this is the time to buy,” Beckwitt said. “There is a fear that sale prices have not hit rock bottom, which has led to an elevated level of cancellations.”
Lennar is not alone in sweetening deals for potential buyers. More than half of the builders surveyed by the National Association of Home Builders in September said they offered incentives, such as mortgage rate buydowns and price reductions, to help drive sales, the trade group said earlier the this week.
Although builders have courted buyers, existing self-sellers have pulled back. The inventory of homes for sale at the end of August fell for the first time since January, according to National Association of Realtors data released Wednesday. Sellers “don’t want to give up that 3% mortgage rate,” the association’s chief economist Lawrence Yun said at the time.
Write to Shaina Mishkin at firstname.lastname@example.org