Homebuilder Lennar (LEN) has joined a growing list of industry peers warning that a cooldown is coming to the housing market.
In an earnings statement Tuesday, the home construction company said inflation and surging financing costs have led would-be home buyers to reconsider their purchases, but maintained its delivery expectations for the year of approximately 68,000 homes.
"The Fed's stated determination to curtail inflation through interest rate increases and quantitative tightening have begun to have the desired effect of slowing sales in some markets and stalling price increases across the country," Lennar Executive Chairman Stuart Miller said.
Lennar reported earnings for its second fiscal quarter that beat analyst expectations, but recorded a single-digit rise in new home orders for a second straight quarter.
The company reported earnings per share of $4.49, more than the $3.99 per share analysts had anticipated, according to data from Bloomberg. Revenue came in at $8.36 billion, above estimates for $8.13 billion.
Lennar’s message comes after the Federal Reserve last week raised its benchmark interest rate by 75 basis points, the largest increase in nearly three decades.
The U.S. central bank’s ramp up on borrowing costs has driven mortgage rates this year to nearly 6%. Last week, the 30-year fixed rate mortgage soared to 5.78% from 5.23% the previous week, according to data from Freddie Mac. The jump marks the biggest one-week increase since 1987 and brings the cost of servicing a mortgage to the highest level since November 2008.
Lennar, however, is not the only company in the housing industry to have recently indicated inflationary pressures and higher interest rates were beginning to weigh on the market.
Online real estate platform Redfin (RDFN) recently announced it would let go of 8% of its workforce, with CEO Glenn Kelman citing the slowdown in home sales and a sharp rise in mortgage rates.
“When mortgage rates go up, buyers’ budgets go down,” said Redfin Deputy Chief Economist Taylor Marr. “Budgets haven’t fallen from a year ago and we don’t expect home-sale prices to fall, either, but the fact that budget growth has slowed so significantly is one sign among many that home-price growth will continue to slow as the year goes on.”
Compass (COMP), like Redfin, also announced last week that it was trimming its workforce – another sign that companies in the housing industry are grappling with a cooping market from last year’s pandemic-driven rise in home sales.
"[The] weight of a rapid doubling of interest rates over six months, together with accelerated price appreciation, began to drive buyers in many markets to pause and reconsider," Miller said in Lennar's earnings statement. "We began to see these effects after quarter end."
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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