Big Builders Talk 2019

As the new year in housing kicks off, one home builder is predicting a market bounce-back, while the other is taking a "more holistic view" of current pressures in the industry.

National home builder Lennar's outlook is one of confidence in terms of a market refresh, prompting its stock to rise 10 percent in the second week of January 2019, though the builder, along with KB Home, did not offer formal guidance for the year, citing uncertainty in the market. As well this week, the builders reported their earnings, and while Lennar's net income surpassed earlier predictions, revenue, deliveries, and new orders were underwhelming, MarketWatch reports.

Yet, in a call with analysts, CEO Richard Beckwitt said that the market uncertainty is not hampering land acquisition, “We do opportunistically take advantage of market weakness. When builders pull back from opportunities, it gives us an opportunity to swoop in generally on something that could be shovel-ready at a price that’s more competitive than it was under contract.” 

KB Home executives had less to say about the macro environment, but in prepared remarks, CEO Jeffrey Mezger said, “The economy is expanding. Consumer confidence is high. Employment is strong, wages are growing, and household formation is increasing. Alongside these positive factors, the supply of existing homes remains low at 3.9 months nationally, and below that level in many of our markets, and single-family housing starts for 2018 will once again be well under the long-term annual average.”

But Mezger took a more holistic view of housing headwinds than Lennar’s team, noting “heightened affordability pressures” rather than just rates. The 30-year fixed-rate mortgage averaged 4.78 percent throughout the fourth quarter, up from 3.92 percent during the same period in 2017. But home prices are also a key part of affordability.

Read more