Lennar Corp

NYSE:LENUnited States

By Denny Jacob Home builders are looking forward to what economists predict will be a Federal Reserve interest-rate cut in September, but that one move won't be enough to breathe new life into a nearly stagnant housing market. Fed Chair Jerome Powell signaled Friday that rate cuts are coming, saying "the time has come for policy to adjust." With a historic shortage of housing supply unlikely to change anytime soon, investors are counting on multiple rate cuts to boost home builders as record-high prices, historically low inventory and recession fears keep buyers at bay, analysts say. "Lower rates alone will not fully address the chronic undersupply of housing," Toll Brothers CEO Douglas Yearley Jr. told investors during a Wednesday earnings call. Although, "we would clearly welcome lower rates and are excited by the prospect of a normalizing housing market." Rate cuts mean companies such as Toll Brothers, Lennar and D.R. Horton can more easily offer deals ranging from mortgage buy-downs to closing cost pickups to entice buyers. It would also spur more new housing projects. The latest data show housing starts are slumping, while revenue for most home builders remains on the rise as median home prices hit new highs. Some potential buyers also remain locked into low mortgage rates below 3% and are waiting for them to come down further before moving or starting renovations, said Jeffrey Stevenson, building products and distribution analyst at Loop Capital Markets. Those buyers will need a good reason to jump into the fray. "Lower rates will help entice these buyers to get off the sidelines, which will help improve the velocity of existing home sales as well," Stevenson said. He sees repeated cuts, which are likely to accelerate single-family housing starts and existing home sales, as key to a sustainable recovery of new housing potentially starting as soon as 2025. Regional and independent builders, which are more sensitive to higher interest rates, would also benefit from multiple cuts in the long term, Stevenson added. To be sure, mortgage rates have recently touched their lowest level in more than a year--the average rate on the standard 30-year fixed mortgage sits around 6.5%--and are expected to go lower. Even without the rate reduction, U.S. home sales rose slightly in July, ending a fourth-month streak of declines, according to data released Thursday from the National Association of Realtors. And rate cuts won't fix higher home prices amid historical inventory lows. "The impact of interest rates on affordability, as well as persistent and stubborn inflation, have moderated housing market strength," Lennar co-Chief Executive Stuart Miller said on a call with investors in June, adding that consumer confidence is a major factor. A recovery will ultimately be decided by pressured consumers, who could still decide to wait it out, said Carl Reichardt, managing director of homebuilding equity research at BTIG. Rate cuts could make sense mathematically, but won't predict when the consumer will be bullish on the housing market again as they face uncertainties in the job market and hope that rates will decline even further. "There are ways in which lower rates can have a potentially less positive psychological element to...the consumer's mindset," Reichardt said. Write to Denny Jacob at denny.jacob@wsj.com (END) Dow Jones Newswires August 23, 2024 15:33 ET (19:33 GMT)

By Spencer Jakab

This column is part of the eighth annual Heard on the Street stock picking series.

A cannibal could help build your next home. Don't be alarmed.

07:36 AM EDT, 08/14/2024 (MT Newswires) -- Lennar (LEN) has an average rating of outperform and price targets ranging from $144 to $240, according to analysts polled by Capital IQ. (MT Newswires covers equity, commodity and economic research from ma...