Homebuilder Reports Gains; Hot Markets to Watch in 2014

Slowdown Doesn’t Deter Lennar’s Performance

Despite a slowdown in the housing market that hurt many big construction companies, America’s No. 3 homebuilder, Lennar Corp., reported a 13 percent hike in quarterly orders. Lennar also said it tallied the second-highest gross margins in its 59th year of existence.

The construction giant’s performance shows that gains are being made in an industry that many say is still schizophrenic.

“The housing market remains on track for a solid recovery,” said Lennar Chief Executive Stuart Miller on a conference call.

According to Reuters, Lennar developed a smart strategy, buying land in very high-demand areas at bargain prices throughout the economic downturn, and is therefore in a better position compared to its peers. Now that there is a shortage of developed lots, the company can rake in more money by raising prices.

“They’re best in class,” Williams Financial Group analyst David Williams told Reuters. “These guys are doing everything that needs to be done and they’re able to drive gross margins higher even in the face of rising costs.”

According to Lennar, its average selling price rose 18 percent to $307,000 in the fourth quarter ended Nov. 30.

The jump indicates that “demand is still strong enough to allow Lennar to maintain its recent price increases during a volatile political and rising interest rate environment,” Raymond James analyst Buck Horne wrote in a note, according to Reuters.

Lennar’s orders climbed to 4,498 homes from 3,983 in the fourth quarter of 2012. Net income attributable to Lennar rose to $164.1 million, or 73 cents per share, in the quarter ended Nov. 30, compared to $124.3 million, or 56 cents per share, a year earlier.

Gross margins skyrocketed 330 basis points to 26.8 percent. Total revenue rose 42 percent to $1.92 billion.

What has also worked to Lennar’s advantage is its decision to offer “multifamily”  or apartment rental business, a strategy that its peers didn’t adopt.

“Multifamily could be a huge driver for (Lennar’s) earnings growth next year that I don’t think has been factored into shares yet,” Williams said.

The company said it has already leased one apartment community. At the end of the fourth quarter, it had 11 more under construction.

Venturing into the apartment market was a smart move and would help the company weather any slowdown.

The housing market, which was on a meteoric rise through 2012, slowed down in the summer as mortgage rates climbed and anxiety rose that the Federal Reserve would reduce its bond-buying program.

Trulia Releases Top Markets to Watch in 2014

The new year will ring in more recovery in the housing market, and it could also usher in new hot markets. Trulia recently listed the top 10 housing markets to watch in 2014.

“We looked at whether builders are betting on local markets, since builders build in markets where they think will be demand,” Jed Kolko, Trulia’s chief economist, said.

Apart from construction activity, there were two other considerations while compiling Trulia’s list.

“Markets that have faster job growth tend to have stronger housing,” Kolko said. “We looked at job growth over the past year, and also over a longer period of time. Housing markets don’t only depend on what’s happening today in the economy, but where it’s going in the longer term.”

The list excluded regions where homes are overpriced, such as the coastal areas of California, or areas with high foreclosures.

Topping the list of 10 housing markets to watch in 2014 are:

Bethesda-Rockville-Frederick, Md.
Charlotte, NC.
Denver, Colo.

Read More: realestate.com

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