Lower prices & lots of new supply. Deliveries & backlog rose. Profit margins, profits, & shares plunged.
By Wolf Richter for WOLF STREET.
Lennar, one of the largest homebuilders in the US – it targets the mass market and not the high end – is addressing the housing affordability crisis and the huge amount of new supply in the housing market in its own way as it keeps adding to supply and pushing sales volume, rather than cutting back. It is building more homes, but targeting lower price points, helped by a “decrease in construction costs, reflecting the Company’s continued focus on cost-saving initiatives,” and it’s selling more homes, but at much lower prices, including lower prices per square foot, and in doing so, is giving up an ever-larger slice of its profit margins and net profits that had gotten obscenely fat in 2021 and 2022 when free-money-besotted buyers were stepping all over each other to pay whatever. Now Lennar is cutting prices to where the newly sober buyers are.
In its earnings report yesterday evening for its fourth quarter, ended November 30, Lennar said that deliveries rose by 4% year-over-year to 23,034 homes and that the backlog rose by 18% to 20,018 homes, despite a litany of lamentations about the tough housing market, “constrained by affordability challenges, as well as weak consumer confidence.” Incentives needed to make those deals remained at 14% of revenues per home sold – “to address continued market declines,” as it said.
So the average sales price per home sold plunged by 10% year-over-year to $386,000. Lennar guided for an average sales price in Q1 2026 of $365,000 to $375,000. The mid-point ($370,000 blue in the chart) would be the lowest sales price since Q1 2017, and down by 25% from the peak in Q3 2022 ($491,000).
Lennar, like all big homebuilders, figures the cost of incentives and mortgage-rate buydowns into the average sales price per home sold.
The homebuilder is on the right track in terms of addressing the problems of this screwed-up housing market after the price explosion in the years through 2022.
“Lower revenue per square foot and higher land costs year over year” were largely responsible for the year-over-year decline in gross margin, “partially offset by a decrease in construction costs, reflecting the Company’s continued focus on cost-saving initiatives,” it said.
Its gross margin on home sales dropped to 17.0%, from 22.1% a year ago and from 28% in Q4 2021.
Lennar’s shrinking gross margins on home sales:
- Q4 2025: 17.0%
- Q4 2024: 22.1%
- Q4 2023: 24.2%
- Q4 2022: 24.8%
- Q4 2021: 28.0%
In its guidance for Q1 2026, it projects further declines in its gross margin to 15.0% to 16.0%.
Due to lower average sales prices, revenues from homebuilding fell 6.9% year-over-year despite the increase in deliveries – selling more homes at lower prices.
Operating earnings from homebuilding plunged by 52% year-over-year, net income plunged by 55%, and earnings per share plunged by 52%.
And its shares [LEN] have plunged by 39% from the peak in mid-October 2024, the moment when it finally dawned on the stock market that the housing market boom was cooked.
“Even as interest rates moved slightly lower in our fourth quarter, the overall market remained challenged,” it said.
“Even as market conditions softened, we prioritized providing supply for a healthier housing market, while driving down costs to support affordability. Our strategy remains consistent and clear: maintain volume, adapt to evolving conditions, reduce costs, and support housing affordability,” the report said.
Homeowners who want to sell their homes are losing buyers to the homebuilders, especially in markets with lots of new construction. Sales of new single-family homes have held up, even as sales of existing homes have plunged by 25% or more.
In case you missed it: The Most Splendid Housing Bubbles in America: Price Drops & Gains in 33 Large Expensive Metros in November 2025
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May be they just built smaller homes. Should be price / sqft
1. Read the article more carefully: Per square-foot prices dropped again (first paragraph and further down).
2. No, should not be per square foot because people buy a home with a price and a mortgage payment, not per square foot.
Does Lennar’s key markets align with the markets that have seen the largest drops in prices, like Austin and the Sun Belt generally?
Looks like Lennar’s gross margin ranged between 11-14% through the 2010s. Is that where we should expect to see it fall to before calling the housing deflation largely over, or will it overshoot into the single digits like after the housing bust?
Where I live in the PNW new home builders are building townhomes at the cheaper price because the law allows it. Houses are still selling here but slower than before. Yes, down 5% off the top. Houses they sell are still way out in the boonies where land value is lower.
Something I am seeing in the southeast. First buying large tracts of land just a few miles out from the edge of mature suburbs presumably for lower land costs. In unincorporated areas with fewer rules and regulations. Then building small communities sometimes mixed with duplexes or quadplexes for lowered costs. Not very fancy, just all in all trimming a little expense off to sell at lower prices.
I took a peek at the release to see if I could find some version of “completed, unsold inventory” but it eluded me.
I did however note that net margins are now around 9-10% and guidance is for around 5% for 2026. That’s not a lot of wiggle room. If input prices or interest rates move up a hair or demand contracts further, I wonder if they’ll continue pumping out supply at a loss or pause their building.
I hope other builders follow this.