Lennar 4Q earnings review (Part 2 of 3)
The top line is growing rapidly for Lennar
For the fourth quarter, Lennar reported $1.9 billion in revenues, an increase of 42% year-over-year. Homebuilding revenues increased 50%, to $1.7 billion from $1.2 billion in the fourth quarter of 2012. Sales incentives dropped to $20,600 per home from $25,800 last year, which is a drop from 9% of the average home to 6%. Like most builders, Lennar is benefiting from tight inventory, which allows it to raise prices. This explains some of the record margins that it has been reporting. Rialto Investments reported $58.9 million in revenues, which consisted primarily of securitization revenue and interest income from new loan origination.
For the full year, Lennar reported revenues from homebuilding sales of $5.3 billion, an increase of 52% from full-year 2012′s $3.5 billion. Sales incentives were $20,500 for the year (or about 6.6% of average selling price) compared to $28,300 (or about 10% of average selling price) last year.
Pay attention to both units and dollar values
For the quarter, average selling prices increased to $307,000 from $261,000 during the same period last year. We’ve seen increases in average selling prices from every homebuilder. Deliveries were 5,650 homes, a 27% increase from the fourth quarter last year. For the full year, average selling prices increased 13.7%, from $255,000 to $290,000. New home deliveries increased to 18,234 from 13,307 last year.
New orders increased 13% in units, to 4,498 homes, and the dollar value of new orders increased 34%, to $1.4 billion. Backlog is 4,406 homes, or $1.6 billion. This is an increase of 19% in units and 34% in dollar terms.
Lack of inventory remains an issue, but for how long?
The big question for the builders is whether they can continue to raise prices as aggressively. Buyers are being subjected to a double whammy between higher mortgage rates and higher prices. The big increase we’ve seen in average sales prices are probably not sustainable. Stuart Miller, CEO of Lennar, said, “While the political and interest rate environment and our previously initiated price increases tempered new sales orders in the fourth quarter, we were still pleased with our overall performance.”
Another big question for the builders is when the first-time homebuyer will return. Household formation was exceptionally low during the housing bust due to the tight job market. Housing starts are still highly depressed compared to historical levels. We recently broke 1 million starts, which has only happened twice since the collapse. Historically, a million units is a severely depressed level—we’ve averaged around 1.5 million units per year since the 1950s. At some point, the builders will be unable to increase the top line simply by raising prices and will have to increase deliveries. This will help bring supply and demand back into balance.
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