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.
Wolf, there’s something not right here.
If you check out Lennar’s web site, you’ll see for instance Woodstock Plan 4055 in Surprise AZ to be around 370K. This is a 1250sqft house on a 4800sqft lot. That’s a representative home in an “up and coming” areas in the Valley, like Surprise, meaning the best deal you can find in Phoenix area.
Around 2021 for this price you could have bought about 2400sqft house on a lot at least 7000sqft. I know, I’ve bought and sold some at that time in the same area.
For a family looking for shelter, these prices are catastrophically high. It’s hard to imagine (though not impossible) a family looking seriously at 1250sqft. I’ve toured these homes. There’s no living room to speak of. Tiny, tiny. That’s more of a condo square footage packed into a “house”. 2400 sqft on the other hand is a nice home.
I am looking at this chart you have, and it’s just not reflecting reality the way a typical buyer would see it. This chart shows optimism, but that’s not the reality out there. Kind of like Trump’s speech tonight, or as they say where I’m from “all hat and no cattle”. Just my 2/100.
1. Read the article. READ IT. Don’t just look at the pictures. Average sales price includes all incentives and discounts, including mortgage rate buydowns. You don’t see that in an example house.
2. An up-and-coming area of Phoenix is not a representative area for Lennar’s nationwide business. Phoenix is much more expensive than most other markets where Lennar is active, such as the suburbs in Texas and Florida, and in the South. Phoenix is the “West.” Lennar’s average sales price in the West is nearly $600,000. These are Lennar’s average sales prices by region:
East: $359,000
Central: $361,000
South Central: $224,000
West: $596,000
Other: $611,000
3. anecdotal stuff — like “this one house I’m looking at”– is always BS.
Houses have been getting smaller by 1.25%/year for a dozen years. So perhaps a 5% drop in the last 4 years is due to a smaller house is valid, but it certainly does not explain a 25% drop.
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?
Excellent question that highlights the discrepancy between the market asking price and the buyers psychological vulnerability.
Current buyers, I think, are catching a falling knife.
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.
Home ownership is a complex human engagement summed up into a couple of words,
Home builder stocks still trading many times pre COVID prices..wonder how long that can last!
We are seeing condo products coming back to life where I live in the city. Very slowly but interesting to see as that is perhaps a better option than apartment living and perhaps for some that don’t want to live in the ex-burbs just to buy a slab track home.
The ‘the average price per house sold’ graph shows ….2018,2029,2020….. on the x axis. Noting it just so you are aware of it.
The price of building materials since 2017 has doubled to quadrupled in price. Everyone points to lumber, as if that’s all a house is built with, but look at the price of windows, doors, siding, decking, shingles, cabinets, flashing and aluminum coil, romex wire, propress fittings, etc… not to mention the rising cost of labor.
I guess what I’m saying is, with the devalued dollar/inflated price of labor + materials, a $360k home built in 2017 can’t possibly be equivalent to a $360k home built in 2025/2026. Is there a “Home Quality Index” that measures or standardizes a baseline for home quality?
People always get confused with inflation and price of building homes.
What matters most is how much people afford when it comes to home prices and nothing else.
This company realizes that those old margins are history, they were a fluke.
Accept reality or be left behind by those who do.