Lennar Corp. (LEN - Get Report) shares surged to a three-month high Wednesday as two Federal Reserve officials signaled slower 2019 rate hikes, easing pressure on mortgage levels, and the nation's second largest homebuilder said current quarter activity would likely pick up as a result.
Lennar CEO Stuart Miller told investors on a conference call that he expects the firm to open 50,000 new homes in the currency fiscal year, which began on December 1, after reporting adjusted earnings for the three months ending in November of $1.96 per share, just ahead of the Street consensus of $1.92 per share. However, while group sales rose 71% to $6.5 billion, and new home deliveries surged 64% to 14,154 units, each missed forecasts of $6.53 billion and 14,185 units respectively.
"With inventories low, we believe (slower fourth quarter traffic) is a temporary adjustment as strong employment, wage growth, consumer confidence and economic growth drive the consumer to catch up," Miller said on the conference call.
Lennar shares rose 8% higher in early afternoon trading and changing hands at $46.29 each, a move that takes its three-month gain to about 3.7% and values the Miami, Florida-based group at just over $14.5 billion.
Housing has been one of the few agreed weak spots in an otherwise solid U.S. economy, as buyers fret over rising interest rates and limits and a slump in new building keeping supply at bay.
The Commerce Department said single-family home construction fell to an 18-month low in November, even as housing starts jumped 3.2% to 1.256 million units thanks to a surprising surge in multi-family building.
The Philadelphia Housing Sector Index, a measure of the twenty-biggest U.S. homebuilders, has fallen more than 7.6% over the past three months and is down down more than 27% for the year.
"During the fourth quarter, we continued to experience slower sales due to higher home prices and rising mortgage rates, consistent with what we highlighted on our third quarter conference call," said Miller said in a statement that followed the earnings report. "We continue to believe that the housing market is adjusting to a temporary disconnect between sales prices and buyer expectations and that the basic underlying fundamentals of low unemployment, higher wages and low inventory levels remain favorable."
Last week's dovish tilt by U.S. Federal Reserve chairman Jerome Powell, however, has allowed mortgage rates to ease from multi-year highs, a move that could prime new home sales over the first few months of the year as the country's job market rides its healthiest run in decades.
The Mortgage Bankers Association said Wednesday that 30-year mortgage rates, the most common form of borrowing for new and existing home purchases, fell 10 basis points to 4.74% in the week ending January 4, as its key purchase index jumped 16.5% to 255.2.
That move was given a further boost by comments from Atlanta Federal Reserve President Raphael Bostic, who said the central bank should be "patient" and seek "greater clarity" from economic data before moving towards fresh interest rate hikes.
"The appropriate response is to be patient in adjusting the stance of policy and to wait for greater clarity about the direction of the economy and the risks to the outlook," Bostic told the Chattanooga Area Chamber of Commerce. "All the available evidence at the moment points to caution regarding firms' approach to expansion. As long as that caution exists I suspect it will act as a natural governor" on U.S. growth.
Those views were echoed by Chicago Fed President Charles Evans, who told a business audience in Illinois that "because inflation is not showing any meaningful sign of heading above 2%, I feel we have good capacity to wait and carefully take stock of the incoming data and other developments."
Miller said that, "due to continued softness and uncertainty at this seasonally slower time of year, we are deferring guidance for fiscal year 2019 until the markets further define themselves".