Lennar signals cooling in housing demand as higher interest rates spook buyers

Signage is seen at The Collection at Morristown, a Lennar Corporation subdivision, in Morristown, New Jersey, U.S. November 13, 2021. REUTERS/Andrew Kelly/File Photo

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June 21 (Reuters) – U.S. homebuilder Lennar Corp (LEN.N) warned on Tuesday of a slowdown in demand for homes as soaring prices and soaring interest rates push buyers into the gap, threatening the breakneck pace of industry earnings growth.

In the industry’s strongest warning to date, Lennar said any forecast at this stage would be “guesswork”, although the company stuck to its full-year delivery expectation of around 68,000 homes.

“The Fed’s stated determination to reduce inflation through interest rate hikes and quantitative tightening has begun to have the desired effect of slowing sales in some markets and stalling price increases across the country. “, Lennar’s executive chairman, Stuart Miller, said in a statement.

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The U.S. Federal Reserve last week made its biggest interest rate hike since 1994 in a bid to tackle high inflation in decades, while mortgage rates on the most popular type of home loan in the US United States marked the largest weekly increase in 35 years. Read more

Lennar may have to cut some home prices to support demand, company executives said in a post-earnings call with analysts.

“LEN’s earnings comment is likely to be an indicator for the group,” Barclays analyst Matthew Bouley said in a note.

Profits from U.S. builders such as Lennar and DR Horton Inc (DHI.N) are now expected to cool after nearly doubling during the pandemic, when strong demand for homes from people working remotely drove prices up.

Lennar posted a single-digit rise in orders for the second consecutive quarter, in another sign of a slowdown.

Still, rising house prices and demand helped it post a second-quarter profit of $1.32 billion, or $4.49 a share, beating analysts’ expectations of 3.96 dollars per share, according to Refinitiv IBES data.

Revenue was $8.36 billion, above expectations of $8.08 billion.

Shares of the company rose 2.3% in afternoon trading.

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Reporting by Kannaki Deka and Nathan Gomes in Bengaluru; Editing by Devika Syamnath

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