Lennar Says Home Sales Sparkle

By Scott Blake
The region’s housing construction market is on an upswing for major builder Lennar Corp. — indicative of improving economic conditions, the company’s division president for Southeast Florida said Tuesday.

Carlos Gonzalez spoke with Miami Today on the same day the Doral-based home builder released rosy second-quarter financial results, beating expectations of Wall Street analysts.

Mr. Gonzalez said new home prices are on the verge of "hyper inflation" in Southeast Florida, attracting many buyers eager to lock in prices now before they may increase more. Lennar’s home closings in the region are up 25% to 30% from a year ago, he said.

"If you look at affordability today [for buyers], it’s at historic highs…. It’s really a rosy picture for us."

The US Commerce Department reported that buyers nationwide purchased new homes at a seasonally adjusted rate of 476,000 in May, up 2.1% from April — the strongest pace in five years. Also, existing-home prices in 20 major US metro areas were up 12.1% in April compared with a year earlier, according to data from Standard & Poor’s and Case-Shiller.

Mr. Gonzalez said Lennar is seeing buyers ordering homes well in advance of construction, but the company is limiting advance orders to about six to eight months prior to delivery. He said it is a balancing act between cashing in on current demand and holding off to get higher prices in the future.

"We don’t know where construction prices are going to be months from now, but we have to honor the prices we sell for today," he explained. "While prices are rising, why would I want to sell a home now when I could get more for it in three months?"

Lennar isn’t the only major builder benefiting from what industry leaders are calling a solid housing market recovery. Others such as PulteGroup, D.R. Horton and Toll Brothers have enjoyed stock market gains this year.

Although Southeast Florida’s high level of home foreclosure filings and rising nationwide interest rates this spring are concerns, it hasn’t hurt Lennar’s pricing and sales here so far, according to Mr. Gonzalez.

He said the company tries to focus its housing developments away from areas with higher levels of financially distressed properties, which often lead to short sales at reduced prices.

"It’s about picking out the right spots," he said. In certain places in Southeast Florida, "prices have been escalating dramatically."

He said homebuyers seem more comfortable now with their financial situations and job security, also contributing to the increase in sales. And those sales, he added, appear to be on better financial footing with the improved loan underwriting standards implemented by banks and other lenders in the aftermath of the housing crash and financial crisis.

However, he added, if interest rates continue to rise for buyers, it eventually will cool off demand.

"We think there is still more room" for future rate increases, he explained, "but at some point, it will have an effect."

Since April alone, interest rates for a benchmark 30-year fixed-rate mortgage have increased to 4.51% from 3.43%. For a $250,000 loan, that higher rate translates to an increase in monthly principal and interest payments to $1,268 from $1,112, according to financial newspaper Barron’s.

Now several years removed from Florida’s real estate crash, Lennar also is benefiting from less competition. There simply are fewer active builders out there, Mr. Gonzalez said, although that will change if the market continues to heat up.

Lennar focuses on certain spots in the suburbs, building single-family homes and townhouses geared to first-time buyers, move-up buyers and retirees.

"It’s such a local business and a micro-market industry," he explained.

He said one of those niches is a spot in West Hialeah, an area with virtually no new home construction in well over a decade. The company recently held a grand opening for Aragon, a gated community of more than 100 home sites where interest from buyers has been high. He said it is indicative of current conditions in the industry.

"We had to do a lottery for people waiting to order homes," he said about Aragon, where Lennar is pricing townhouses in the "mid-$200,000s" and single-family homes in the "mid-$300,000s."

Elsewhere, Lennar recently secured a loan extension from City National Bank for its plans to build 7,000 homes on a 781-acre site outside the Urban Development Boundary in southwest Miami-Dade.

Mr. Gonzalez said Lennar doesn’t plan to reactivate the Parkland project just yet and it still needs county approval to extend the development boundary. However, he added, if the market continues to rise, there could be a need for more housing inventory and the company may push ahead with it.

"We filed an application [for the project] many years ago," he said, "but the plans have been on hold."To read the entire issue of Miami Today online, subscribe to e-MIAMI TODAY, an exact digital replica of the printed edition.