Homebuilders post strong quarter as new home supply trails demand

(Reuters) - Lennar Corp LEN.N and KB Home KBH.N posted strong quarterly earnings as scarcity of new homes kept the U.S. housing recovery firmly on track.

U.S. homebuilders have been under pressure since May when interest rates started rising on fears that the Federal Reserve would taper bond purchases, but the sector got a short-term relief last week when the Fed extended its monetary stimulus.

Lennar shares rose 5.5 percent to $36.46 in afternoon trade on the New York Stock Exchange. Shares of KB Home were up 7 percent at $18.30.

Lennar Chief Executive Stuart Miller said that although the year has witnessed significant building activity, supply would still fall short of demand by a wide margin.

“Builders ... have been pushing to increase production as inventories of rentals, existing homes, and new homes, have remained extremely low and pricing for all of these products have been moving up,” Miller said on a post-earnings call.

Lennar, the No. 3 U.S. homebuilder, said orders for new homes rose 14 percent in the third quarter, compared to a 27 percent increase in the second quarter.

Wall Street Strategies analyst David Urani said “14 percent is still pretty good,” considering the mortgage rate impact.

“Interest rates are more of a near-term thing and sort of a speed bump. If you are going to abandon homebuilders because of that, then you are taking too much of a short-term outlook,” Urani said.

U.S. housing starts rose less than expected in August amid a sharp slowdown in the multifamily sector, but a surge in permits for single-family homes pointed to sustained strengthening in the housing market recovery.

Homebuilders are also getting aggressive on land acquisitions as a dearth of developed land constrain their ability to cater to rising demand.

Miami-based Lennar is better positioned than most to continue building houses as it got back into the game early following the housing crisis and has actively bought land over the past several years.

Miller said on the call that Lennar’s land bank would help the company meet its projected deliveries through 2014 and much of 2015.

“As a result, we are pursuing land opportunities for 2015 and beyond,” he said.


Orders, a key indicator for builders who do not book revenue on a house until the sale is complete, jumped to 4,785 houses in the third quarter, Lennar said.

Lennar’s backlog - houses ordered but not yet finished - rose 32 percent to 5,958 in units and 53 percent to $1.9 billion in value.

KB Home said its net orders rose 7 percent to $528.9 million from a year earlier, in terms of value.

Lennar posted net income of $120.7 million, or 54 cents per share, in the third quarter from $87.1 million, or 40 cents per share, a year earlier.

This beat analysts’ average expectations of 45 cents per share on revenue of $1.56 billion, according to Thomson Reuters I/B/E/S.

KB Home reported quarterly earnings of 30 cents per share, above analysts’ average expectations of 21 cents per share.

The strong results from Lennar and KB Home also drove a 4 percent rise in the Dow Jones Home Construction .DJUSHB index.

Reporting by Bijoy Koyitty in Bangalore; Editing by Sriraj Kalluvila