Higher mortgage rates have led to a decline in home sales nationally, but as the saying goes, all real estate is local.
the country’s second-largest builder by market capitalization on Thursday listed the housing markets that have held up best — and worst.
The homebuilder was one of two to report earnings this week for the quarter ended Aug. 31.
(ticker: LEN) and the smaller builder
“Homebuilding is once again at the forefront of everything happening in the economy, and the Fed’s use of its interest rate tool to contain inflation is certainly having the desired effect on the housing market for sale,” said Stuart Miller. Lennar’s executive chairman said during the company’s third-quarter earnings call.
Lennar adjusts prices and offers incentives to drive traffic, executives said. The company’s new net sales price was 9% lower than in the second quarter, but 1% higher than the year before, co-CEO Richard Beckwitt said during the conversation. During the third quarter, incentives for new orders increased from 2.3% in June to 6% in August, he added.
“While we are lowering prices and increasing incentives, there is still demand,” Miller said. “These fundamentals give us assurance that while there is a short- and medium-term reconciliation, the long-term outlook for housing remains strong.”
Not every housing market asked for the same hard love. Beckwitt divided the housing markets into three categories: those that continued to perform well, those where sales momentum increased after the company adjusted prices or incentives, and those that needed further price adjustments to boost sales.
Sales remained strong in nine areas, Beckwitt said. They include New Jersey; Maryland; Virginia; Charlotte, NC; Indianapolis; San Diego, California; and three Florida markets: the Southwest, the Southeast, and the Palm Beach area.
“These markets are benefiting from extremely low inventories, and many are benefiting from a strong local economy, job growth and immigration,” Beckwitt said, adding that Lennar offered mortgage buyback programs and some incentives to keep up the pace of sales. “Some communities in these markets need targeted price adjustments on a limited basis,” he added.
Most of the locations fell into the second category. The company said it has made “more significant adjustments to regain sales momentum” in more than 20 markets. Among them were some of the hottest markets of the pandemic, such as Phoenix, Dallas and Tampa, Fla.
Other areas in this category were Orlando, Florida; Jacksonville, Florida; the Carolina coast; Atlanta; Chicago; Nashville; Raleigh, NC; Houston; San Antonio; Tucson, Arizona; Las Vegas; Colorado; Seattle; and various parts of California, including the coast, the Inland Empire, the Bay Area, the Central Valley, and Sacramento.
Traffic in each of these markets has slowed and cancellations have increased, Beckwitt said, adding that the company offered buyer benefits such as “aggressive” financing programs, price cuts and increased incentives to boost sales.
The company says buyer pullback was strongest in seven markets, including Boise, Idaho, where prices shot up earlier in the pandemic amid lower rates and the work-from-home boom. “While the drivers and individual dynamics of these markets are somewhat different, traffic has slowed significantly,” Beckwitt said. Other markets in this category include Philadelphia; Pensacola, Florida; Austin; Reno, Nev.; Minnesota; and Utah.
Many buyers in those markets “need to be convinced that now is the time to buy,” Beckwitt said. “There is fear that sales prices have not bottomed out, which has led to a high number of cancellations.”
Lennar is not alone in making deals more attractive to potential buyers. More than half of builders surveyed by the National Association of Home Builders in September said they: offered incentivessuch as mortgage interest buybacks and price cuts, to boost sales, the trading group said earlier this week.
While builders are suing buyers, sellers of existing homes have pulled out. The stock of existing homes for sale at the end of August fell for the first time since January, data from the National Association of Realtors released Wednesday showed. Sellers “don’t want to give up that 3% mortgage rate,” chief economist Lawrence Yun. of the association said at the time.
Write to Shaina Mishkin on [email protected]