Builder Knowledge base home (KBH) on Wednesday night released second-quarter earnings and a full-year outlook that beat expectations, even as rising house prices and rising mortgage rates reduced demand for homes.
Shares of the company rose 3.7% ahead of Thursday’s open.
KB Home earned $2.32 per share, above estimates of $2.04 per share. Sales increased 19% to $1.72 billion. It was also above estimates of $1.648 billion.
Homes delivered came in at 3,469, also above forecasts. The average sale price for one of the company’s homes jumped 21% to $494,300.
“Selling rates are moderating from exceptional levels the industry has seen as buyers process the impact of rising mortgage interest rates, as well as inflationary pressures,” CEO Jeffrey Mezger said. in a press release.
Still, KB Home forecasts annual revenue of $7.3 billion to $7.5 billion, with a midpoint above Wall Street estimates of $7.323 billion. And the company, at least for the rest of its fiscal year, didn’t expect home prices to fall: it forecast an average sale price of around $500,000.
Builder by Lennar (LEN) quarterly results, released on Tuesday, also beat expectations. But its delivery prospects turned out to be insufficient. And he noted a “slowdown in sales” and “a stalled increase in prices,” although he expected his average home price to be “slightly higher” in the third quarter.
The results come as the Federal Reserve raises interest rates in a bid to rein in rising prices. The central bank announced last week a three-quarters percentage point hike in its key interest rate. This was the first such hike since 1994.
The Commerce Department releases new home sales data for May on Friday.
Door-to-door sales figures
KB Home released results a day after other data pointed to a slowdown in the US housing market, which has exploded during the pandemic. Sales of existing homes in the United States fell 3.4% in May, the National Association of Realtors announced on Tuesday.
This figure was not as bad as the consensus of 3.6% expected by economists polled by the Wall Street Journal. But it was the fourth consecutive month of decline.
The median price of an existing home topped $400,000 for the first time in May, hitting $407,600, the NAR said. That marked a 14.8% jump from a year ago.
“Further declines in sales should be expected in the coming months given housing affordability issues related to the sharp rise in mortgage rates this year,” Lawrence Yun, NAR’s chief economist, said in a statement. .
He said home sales trends had largely returned to 2019 levels, after the pandemic caused people to flee cities and sparked a boom in home buying and renovations. Yun added that the inventory of homes for sale is expected to nearly double to rein in rising home prices and expand options for home buyers.
Existing home sales fell from April to a seasonally adjusted annual rate of 5.41 million in May.
The inventory of existing unsold homes stood at 1.16 million units, the NAR said. That was up 12.6% from April, but still down 4.1% from a year earlier.
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Other figures suggest that the housing market still remains tight. Homes generally remained on the market for 16 days last month, the NAR said. It was shorter than the 17 days in April and a year ago. Some 88% of homes sold last month had been available for less than a month.
Freddie Mac said last week that the 30-year fixed-rate mortgage rose more than half a percentage point to 5.78%. It was the biggest weekly increase since 1987, he said. The rate hike, he said, was “the result of a change in expectations about inflation and the course of monetary policy.”
Lennar earnings, housing stocks
Lennar said Tuesday he earned $4.49 per share in his second quarter. This marked a 69% jump from a year ago. The result was above FactSet consensus expectations for $3.95.
The company’s home sales soared 30% to around $8.4 billion. Revenue was above estimates of $8.1 billion and helped by a 17% increase in the average selling price of homes.
That price for the quarter was $483,000. Deliveries of 16,549 homes during the quarter also exceeded expectations.
Lennar expects deliveries of 17,000 to 18,500 units for the third quarter. But the company said “current attempts at guidance amount to ‘guessing,’ not ‘guiding.'” Analysts were looking for guidance of 18,123 units.
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The company said levels of unsold homes remained low. However, management also noted that rising rates had begun to scare off some homebuyers in the current quarter.
“While our second quarter results demonstrate strength and excellent performance throughout the quarter, the weight of a rapid six-month doubling of interest rates, as well as accelerating price appreciation, has begun to cause buyers in many markets to pause and reconsider,” Lennar’s executive chairman said. Stuart Miller said in a statement.
“We started to see these effects after the end of the quarter,” he continued.
Lennar stock added 1.2% in early trade. Toll Bros. (TOL) fell 1%. Both stocks ended higher on Wednesday, working atop three-week snap dives to their lowest levels since the end of 2020.
Jefferies analysts, in a note on Tuesday, said “the message from the housing market is grim, with mortgage applications plunging.” They noted that the New York Fed’s latest consumer survey found that half of customers felt “worse off than a year ago in terms of access to credit and expectations.”
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