A Homebuilder Just Reported A Return Stat That'll Have Investors Around The World Drooling
Mario Tama/Getty Images
There are two notable themes in the global economy and markets right now.
One, investment returns are very low. Historically low interest rates have made bond investments unattractive, and the already huge rally in the stock market has everyone expecting future returns to be unusually low.
Two, the American homebuyer is more likely to buy or rent an apartment than buy a single-family home. There are numerous reasons for this, including tight lending standards, high household debt levels, and a general unwillingness to commit to such a huge expenditure. This has led to a boom in multifamily housing construction.
These two themes set that stage for what we just read in homebuilder Lennar's earnings announcement Wednesday. Here's Lennar CEO Stuart Miller:
Complementing our core homebuilding business, Lennar Multifamily recorded its first two sales of apartment properties in the third quarter. Both sales produced greater than our targeted 25% return on invested capital, and demonstrated that our multifamily segment is maturing and beginning to contribute to the bottom line. Our geographically diversified $5 billion pipeline of multifamily product will become a more predictable source of quarterly earnings starting in late 2015 and 2016.
Twenty-five percent is a whopper.
It's certainly worth noting that the S&P 500 is up 17% in the past twelve months.
However, most market strategist agree that the stock and bond markets are likely to return low to mid-single digit returns. Meanwhile, the multi-family housing market faces relatively tight supply conditions.
Of course, not anyone can go out and just invest in a massive real estate development like an apartment. Obviously, the logistics aren't as simple as opening an online brokerage account and buying a couple of shares. And surely there's a mountain of paperwork, and the costs are probably high and complex.
Furthermore, who's to say this isn't the peak of another bubble and that Miller's "predictable" earnings suddenly turn "unpredictable"?
Still. Twenty-five percent. Wow.
Lennar shares were up 4.5% in pre-market trading.
More From Business Insider
THE BEACONS FAQ: It's Time To Set The Story Straight About Beacons And Apple's iBeacon System
SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone
Here's How The Map Of Europe Would Be Redrawn If All The Separatist Movements Get Their Way
A Wall Street Exec Explains What Instantly Turns Him Off When He Sees A Resume
Scientists Found An Intact Colossal Squid For The Second Time Ever, And They Just Cut It Open