The novel Coronavirus is a “circuit breaker” that will have profound implications on the market, but with low interest rates people are still buying homes, Lennar Corp.’s executive chairman Stuart Miller said on a conference call with analysts.
Miami-based Lennar, one of the country’s largest homebuilders, reported its first quarter earnings on Thursday, but its executives talked mostly about how the company and the housing market will fare during the economic fallout from the pandemic. The company announced it will suspend guidance in light of the crisis.
Miller said Lennar is working on new ways for buyers to buy homes, including through the company’s digital programs as well as drive-through closings, where homebuyers can close on a home through their car.
“Even in the current environment, we are selling homes, people are attracted to the safety and security of our homes,” Miller said in the conference call. “Since the end of the first quarter, new orders continue to be strong.”
Lennar is seen by analysts as a bellwether for the broader U.S. housing market and for how the industry and the housing market will fare during the crisis. Lennar’s stock jumped 5 percent to $32.43 after the conference call with analysts at 12:40 p.m. An exchange traded fund that tracks the homebuilding market, SPDR S&P Homebuilders, is up 2 percent since the beginning of the day to $26.50.
As the impacts of the virus play out, the homebuilding and housing markets could take a hit, something Miller acknowledged in Lennar’s earnings. In Boston, all construction has been halted by the city government, which is something that could play out in other markets.
“Although our business has not shut down, we are keenly aware that this landscape can change very quickly,” said Miller.
To prepare for more serious challenges, the company has slowed down its land purchases and is focusing on reducing its outflow of cash to boost its liquidity and balance sheet position, according to a statement accompanying its first quarter earnings.
On Sunday, the Federal Reserve cut its benchmark interest rate to near zero and announced its plan to buy $700 billion in assets, including $200 billion in mortgage backed securities. The Fed’s actions have caused mortgage rates to fall to record lows, which could incentivize borrowers to buy homes when the coronavirus pandemic ends.
As companies begin to lay off employees, the concern will be whether buyers will have enough money to put down a down payment on a house and make mortgage payments.
Lennar is known for its simple, no frills, affordably priced homes. The company has reported strong earnings in the past few years as a housing shortage has led to strong demand for new single-family homes.
The company reported a strong first quarter with net earnings totaling $398.5 million, or $1.27 per diluted share, compared to $239.9 million, or $0.74 per diluted share in the first quarter of 2019. New orders of homes also increased 18 percent on a year-over-year basis to 12,376 homes in the first quarter of 2020.
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