Lennar (LEN) CEO Stuart Miller said Thursday that affordability continues to be a headwind for potential buyers as mortgage rates remain stuck around the 7 percent level.
Miller said on the company's first-quarter earnings call that affordability was “overwhelmed,” noting that “we're definitely seeing a little bit more credit card debt and personal debt from customers showing up on their applications.” He noted: “We have some defaults have been identified on some of these debts.”
His comments came after Lennar on Wednesday reported revenue that fell short of analysts' estimates for its fiscal first quarter ended Feb. 29.
Lennar shares fell about 6% on Thursday on the news, dragging down DR Horton (DHI) and Toll Brothers (TOL), both of which lost 3%. The SPDR S&P Homebuilders ETF (XHB) slipped nearly 2%.
US household debt and defaults have increased. According to the Federal Reserve Bank of New York, total household debt rose by $212 billion to $17.5 trillion in the fourth quarter of 2023.
The challenges of higher mortgage rates and home prices over the last year have plagued buyers trying to enter the market. Mortgage rates have largely risen this year, peaking at around 7% in mid-February. According to Freddie Mac, the average interest rate on the 30-year fixed mortgage fell to 6.74% on Thursday from 6.88% the week before.
“What we see is when you look [our customers] especially more of it [customers] “Debt as a share of total income is higher,” Bruce Gross, CEO of Lennar Financial Services, told analysts on Thursday’s earnings call.
“There is more debt to pay off and that is something new we noticed this quarter. We often work with buyers and can clarify many conditions. But we saw this one point [different from] last quarter,” Gross added.
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