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Trends Suggest U.S. Housing Recovery

Published on Thursday - June 27, 2013

As individual signs point to an imminent housing recovery, U.S. homebuilders are experiencing similar increases in profit. Lennar Corp., the nation’s number three homebuilder, witnessed a 53 percent increase in second-quarter revenue. The welcomed profits are most likely the result of selling more homes at higher prices. Lennar Corp. acknowledged that orders increased 27 percent to 5,705 homes in the spring selling season.

“…Our second-quarter results together with real-time feedback from our field associates continue to point towards a solid housing recovery,” Chief Executive Stuart Miller said in a statement on Tuesday.

Increases in homebuilder revenue also suggest a sturdy housing recovery push.

Due in part to depleted inventory levels and a particular focus on distressed properties, homebuilders like Lennar Corp. have been able to increase their median sale price. As potential buyers turn to homebuilders because of a lack of housing, companies responsible for new starts have been able to leverage the market. A distinct lack of competition form the distressed market has allowed homebuilders to raise their prices by as much as 32 percent in recent months.

In addition to higher prices, Lennar Corp’s backlog rose 55 percent to a recently unprecedented 6,163 homes. By comparison, those homes in the backlog have been started, but remain to be finished.

Lennar Corp., in particular, has taken advantage of the lack of single-family homes and consistently increased their new home start prices. Subsequently, the homebuilder company has acknowledged that they fully intend to take advantage of the rising rental rates that are sweeping the nation. They plan to enter the apartment rental business as soon as possible.

“Affordability remains high and despite recent interest rate increases, we have seen very little impact on sales or pricing,” Miller said.

In response to their recent success, revenue jumped 53 percent to $1.43 billion in the quarter. Analysts, on average, had expected a $1.33 billion quarter for the homebuilder. In light of recent trends, Lennar Corp. stock shares rose approximately 13 percent to $283,000.

Last month, rival Toll Brothers Inc. reported its fiscal second-quarter profit rose 46% as the luxury home builder also reported revenue growth well above Wall Street views, amid higher orders and average selling prices.

However, homebuilders like Lennar Corp. may want to temper their expectations for the coming year. Inventory levels have begun to restore themselves, meaning homebuilders will not have the leverage they recently exercised. A recent report by RedFin has acknowledged that active listings grew 6.4 percent between March and April. The subsequent transition into May witnessed an additional 4.2 percent increase in available inventory supplies.

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