Lennar outpaces Q3 revenue expectations

Homebuilder Lennar (LEN) reported third-quarter beats on earnings and revenue, outlined in yesterday's release. The home construction company is planning to provide nearly 70,000 new homes before the year's end. Yahoo Finance's Dani Romero provides insight into what this could mean for housing market demand and smaller homebuilders and developers.

Video Transcript

RACHELLE AKUFFO: Lennar, one of the nation's largest homebuilders, beat on its Q3 expectations on revenue and profit, announcing earnings yesterday. Now given the company's scale and scope, it can give us a good read on housing demand as a whole. And it's indicating it is strong right now. Our very own Dani Romero is the Yahoo Finance reporter who's been following this, and has been listening in on the earnings call as well this morning. Dani, what are your takeaways?

DANI ROMERO: Rachelle, Lennar's earnings call is still underway. It's going on right now. But this is a homebuilder that focuses on selling after completion to really keep excess inventory low. The biggest highlights from the earnings results was the 37% gain on new home orders, which really signals the strong and solid demand in the new home market despite rising mortgage rates.

The homebuilder also delivered more homes this quarter. That was an 8% gain there. But the quarterly starts pace, that remains pretty steady.

In the third quarter, the quarterly starts pace finished at 4.9 homes. That's slightly lower than the previous quarter of 5.9 homes. That is something that I'm going to be paying really close attention to during the Q&A part, because that really is a good gauge on whether or not the homebuilder is building out more homes, or are they just going through their backlog.

Another thing to highlight was the average sales price of a home sat around $448,000. That's really-- hasn't really gone up. That's to meet the demand, the buyer demand, with affordable pricing, offering incentives. Order prices are down about 5% from last year. So that's really consistent with Lennar focusing on starts pace as well as their pricing.

But Lennar is looking to end the year with a bang. They're expecting to deliver 68,000 - 70,000 new homes by the end of the year. And some Wall Street analysts are liking what they're hearing. They believe that Lennar will fulfill that guidance due to the fact that their cycle time has improved to 32 days, given the fact that they have found more labor. The supply chain constraints have eased to really provide support for that expectation that they're hoping to build.

RACHELLE AKUFFO: Certainly some welcome news in terms of inventory there. So Dani, what about smaller homebuilders? How are they doing in this market?

DANI ROMERO: Let's put it this way, that the bigger fish are really beating the market out there, just like Lennar. And the fact is that they have excess cash. Their stocks are rallying. They also have access to capital.

Some of the small homebuilders are really dealing with a lender pullback. And that really impacts them when they want to take up some land, acquire land, and also construct some of those spec homes. That means a home without a buyer in mind.

Another point to highlight, though, is that when a big homebuilder goes into a local market which is dominated by a smaller homebuilder, they are usually outbid. So that is something that's really impacting smaller home builders as well. But again, there's a boom that's going on in the homebuilding market, especially for new homes. So these small homebuilders are still thriving off of that boom, Rachelle.

RACHELLE AKUFFO: Well, I appreciate you getting us up to speed on that. Dani Romero, thanks so much.