Lennar’s Margins Are the Latest Warning on Housing
Slowing demand and competitive pressures warrant our remaining on the sidelines for now.
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Over the last several trading sessions, our decision to remain on the sidelines when it comes to the housing sector has been confirmed by a growing number of data points, including this week’s disappointing August single-family housing starts data. When we discussed that latest data, we shared the “follow-through” to watch would be quarterly results this week from Lennar LEN and next week from KB Home KBH.
Lennar reported Thursday night, and as we can surmise by the move lower in the shares, its results weren't supportive for housing. Rather, they reaffirmed our concern for margins as homebuilders embrace incentives to sustain momentum. We say this because Lennar’s homebuilding operating margins for its August 2025 quarter plummeted to 9.2% versus 16.0% in the year-ago quarter and almost 18% in the August 2023 quater. That is a sign of housing demand remaining weak and likely means homebuilders will be competitive to win the homebuyers that are in the market.
When KB Home reports next week, we’ll analyze its margins and backlog trends, as well as the implied margin and pricing in its guidance. Should we see similar margin declines, odds are it will mean others in the group will report the same in the coming weeks, likely leading to lower EPS expectations for the second half of 2025.
As we dig into KBH’s results and the August New Home Sales report that is also out next week, we’ll revisit our thinking on Bullpen resident Builders FirstSource BLDR.
As we can see in the above chart, BLDR shares have continued to pull back even though the Fed added one more potential rate cut to its thinking. This reaffirms our view that we will want to monitor multiple housing-related data points, including key commodities and homebuilder margins, to determine when a sustained rebound in demand is taking shape. We will also keep watch to see if the sector falling out of favor is overly excessive, a situation that could lead us to patiently plant an initial housing seed for 2026.
At the time of publication, TheStreet Pro Portfolio had no positions in any securities mentioned.
