MW Lennar sees home prices drop to 5-year lows, but they're still too high

By Tomi Kilgore

Home builder's stock rallies as profitability on home sales meets expectations, and appears to have stabilized

Lennar Corp. reported average sales prices for homes in the latest quarter that were the lowest seen in five years, but said the housing market continues to be weak because housing costs were still too high and consumers were losing confidence.

Despite the drop in prices and an earnings miss for the fiscal second quarter, the home builder's gross margin - a measure of profitability - was in line with expectations and was expected to hold steady in the current quarter.

Investors cheered that sign of stabilization, and pushed the stock $(LEN)$ up 2.6% in morning trading on Tuesday.

The company reported late Monday that home deliveries for the quarter to May 31 increased 2.2% from the same period a year ago to 20,131 homes, which was above the average analyst estimate compiled by FactSet of 20,018 homes.

But the average sales price dropped 8.7% to $389,000 per home, below the FactSet consensus of $393,510 per home, and the lowest price seen since the quarter that ended in May 2020.

Lennar had to increase incentives, such as price discounts and mortgage rate buydowns, to attract buyers.

"Reflecting softer market conditions, our average sales price, net of incentives, declined to $389,000," said co-Chief Executive Stuart Miller. "As mortgage interest rates remained higher and consumer confidence continued to weaken, we drove volume with starts while incentivizing sales to enable affordability and help consumers to purchase homes."

For the fiscal third quarter, the company expects deliveries of 22,000 to 23,000 homes, below the current FactSet consensus of 23,293 homes, while the average sales price is expected to fall even further to $380,000 to $385,000. The average sales price hasn't been that low since the third quarter of 2017.

Gross margin on home sales was 17.8%, down from 18.7% in the previous quarter and 22.6% a year ago. For the current quarter, however, the company expects gross margin on home sales of approximately 18%.

Raymond James analyst Buck Horne wrote in a note to clients that the fact management believes gross margins are stabilizing "should prove welcome news across the entire homebuilding industry."

Elsewhere, Lennar reported second-quarter net income that fell 50% from a year ago to $260.3 million, while earnings per share declined to $1.81 from $3.45 to miss the FactSet consensus of $1.94.

Total revenue was down 4.4% to $8.38 billion, above the FactSet revenue consensus of $8.18 billion, while new orders increased 6.1% to 22,601 homes but missed expectations of 23,024 homes.

Lennar shares have slid 14.3% in 2025, while the iShares U.S. Home Construction ETF ITB has declined 12.4% and the S&P 500 index SPX has gained 2.3%.

-Tomi Kilgore

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June 17, 2025 10:36 ET (14:36 GMT)

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