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  1. Home
  2. / Investing

Lennar Sets Firm Foundation for Homebuilders

The homebuilding sector is showing signs that it can remain red hot in 2019.
By KEVIN CURRAN Mar 27, 2019 | 08:48 AM EDT
Stocks quotes in this article: LEN, PHM, DHI, TOL, KBH

Lennar Corp.'s  (LEN) management commentary is carrying homebuilding stocks upward on Wednesday.

Shares of the Miami-based construction company are rising despite falling short of estimates for the February-ended quarter and a backlog that slipped slightly.

"We continued to see choppiness in the marketplace during our first quarter, consistent with what we highlighted on our fourth quarter conference call," executive chairman Stuart Miller said in a statement. "However, during the quarter, mortgage interest rates subsided and ultimately pulled back and home prices moderated providing a catalyst for the new home market to correct itself."

Still, he noted that the fundamentals of the housing market remain strong, motivating the market's focus on a rebound ahead for more than just Lennar.

"We continue to believe that the basic underlying housing market fundamentals of low unemployment, higher wages and low inventory levels remain favorable," Miller explained.

The favorability has helped lift fellow housing sector stocks like D.R. Horton (DHI) , PulteGroup (PHM) , and Toll Brothers (TOL) in pre-market hours.

KB Home  (KBH) is also rising after reporting a profitable quarter and promoting the view of a promising second half of the year alongside Lennar.

Baked in Bad News for Builders

Lennar and the homebuilding sector are also aided by the fact that much of the bad news was already baked in on Tuesday. 

Housing starts decreased 8.7% to a seasonally adjusted annual rate of 1.162 million units in February, the Commerce Department reported. The number marks the lowest construction rate in one and a half years.

As such, investors were likely prepared for problems in the February quarter. However, this isn't a cause for panic according to Action Alerts PLUS portfolio manager Jim Cramer, who instead touted further opportunity ahead.

"Don't be afraid of the hideous housing numbers. Be aware that this is a natural decline, which I think will be followed by an advance that you can profit from as housing enjoys its annual spring rebound," Cramer said on Tuesday evening's Mad Money.

Powell Pump

Additionally, the major macro factor that moved many homebuilding stocks downward in the back half of 2018 has faded from view, allowing for the advance Cramer is calling for.

Indicative of the importance of rates, mortgage applications jumped 8.9% last week from the previous week and 5.7% from a year earlier, according to the Mortgage Bankers Association's report on Wednesday morning.

Refinance applications also jumped double digits as rates look to stay low for longer than many expected. The idea that the Fed could even cut rates should only add to bullishness on the builders.

"The decline in the 10-year Treasury's yield has been a godsend," Cramer commented. "I bet we get much stronger numbers in the month of March."

For more on the forecast for March and the months of recovery ahead, Lennar will be hosting an earnings conference call at 11:00 a.m. ET on Wednesday morning. The call will be available for live broadcast here.

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TAGS: Earnings | Federal Reserve | Interest Rates | Investing | Markets | Stocks | Construction & Engineering | Materials | Stock of the Day

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