National homebuilder Lennar cited affordability as the main factor that has kept the start of the normally hot spring selling season lukewarm despite a small dip in prices.
On Friday, the firm said its home prices were 1% lower than a year ago due to declining demand, yet factors such as mortgage rates, personal debt and employment uncertainty have made home buying inaccessible to many. The homebuilder also raised concerns about fewer buyers in Florida and Texas.
“Across the housing landscape, actionable demand has slowed materially, but on a bad news is good news basis, all of this has led to the long-awaited environment where the cost of both homes — new and existing — and apartments start to come down,” Lennar Executive Chairman Stuart Miller said on a first-quarter earnings call. He also suggested the market could be heading toward the Federal Reserve’s goal of a 2% inflation rate.
Still, home buyers remain challenged. The average 30-year, fixed mortgage rate moved slightly higher for the second consecutive week to 6.67%. And, according to the Federal Reserve Bank of New York, household debt increased by half a percentage point in the fourth quarter, with mortgage delinquency rates increasing to pre-pandemic levels.
Lennar sold 18,355 homes, between single-family, condominiums, and townhouses, in the first quarter at an average price of $408,000. Lennar is the second-largest homebuilding company in the country, according to rankings by trade publication Pro Builder, building in 21 states.
The spring season is known to be when the highest number of homebuyers enter the market. Lennar noted employment as a leading factor keeping buyers on the sidelines.
“Until recently, consumers have been generally confident that they will remain employed and that their compensation is safe,” said Miller. “But more recently, even that safety has been called into question. A somewhat confused consumer and wavering consumer confidence have challenged the consumer’s desire and ability to transact. While there continues to be considerable traffic of customers looking for homes, the urgency to actually transact remains tepid.”
The sales of existing homes increased last month by 4.2%, according to the National Association of Realtors. Homebuilder confidence in current and future sales of new homes dropped to a seven-month low this week.
Many national builders offer buyers mortgage rate buydowns, price reductions, and closing cost assistance. In the first quarter, Lennar’s sales incentives increased 13%. The firm noted Florida and Texas to be the most challenging in terms of sales, requiring the most incentives.
“In general, homebuyers in Florida and Texas, our two high volume states, needed more help than most other markets around the country and needed more incentives in the Florida and Texas markets to assist buyers to achieve mortgage payments they can afford, as well as the offset of a slowing in-migration environment and increase in inventory,” President Jon Jaffe said on the call.
Lennar’s stock dropped about 3.5% in trading Friday as the builder cited a softening housing market and lower margins, but a positive projection for earnings this year.