Much lower margins, lower revenues per square foot, and lower construction costs. “We are adapting to market conditions as they are and not waiting for the market to bounce back”: CEO.
By Wolf Richter for WOLF STREET.
In its earnings report yesterday evening and in its conference call this morning, Lennar [LEN], one of the largest homebuilders in the US, laid out a laundry list of problems in the housing market that it dealt with in its own way: Revenues in Q1 plunged by 13% year-over-year. Operating earnings from homebuilding plunged by 54%, earnings before income taxes plunged by 57%, net earnings plunged by 56%, and its shares have plunged by 52% since the peak in September 2024.
The average price per home sold plunged by 8.3% year-over-year, and by 24%, or by $118,500, from the peak in Q3 2022, to $374,000 (red in the chart), where it had first been in 2017. The mid-range guidance for Q2 dropped to $372,500 (blue).
Lower prices are what it takes in this frozen overpriced market. Lennar’s deliveries have soared since 2021 and 2022: In Q1 2026, it delivered 16,863 homes, up by 37% from Q1 2021 (12,314), and up by 35% from Q1 2022 (12,538), in a market where sales of existing single-family homes have plunged by 32% from 2021, for the third year in a row, amid surging supply.
Part of it came out of profit margins: The average selling price was brought down by lower price points and by big incentives, including mortgage-rate buydowns. Incentives alone amounted to 14% of the average sales price.
Those incentives and lower prices slashed its gross margin on home sales to 15.2%, down from the obscene 26.9% in Q1 2022 when FOMO-besotted buyers were still willing to pay whatever during the final gasp of the golden days for homebuilders, and Lennar let them and cleaned them out, as did all homebuilders and sellers of existing homes.
Lennar targets the mass market. It doesn’t target the high end. It targets average families that want to buy a home. Its homes are mass-market products, designed and built to be more easily affordable – meaning lower priced. Lower-priced homes are exactly what this price-ravaged market needs.
What Lennar said:
“The decrease in average sales price [in Q1 year-over-year] was primarily due to continued weakness in the market and an increased use of sales incentives offered to homebuyers,” Lennar said.
“Gross margins decreased primarily due to lower revenue per square foot and higher land costs year over year, which were partially offset by a decrease in construction costs, reflecting the Company’s continued focus on cost-saving initiatives,” Lennar said.
“Our strategy has been to actively design around the affordability challenge rather than waiting it out,” Lennar said.
“We have focused on prioritizing volume to create durable scale advantages, delivering that volume at lower prices, and ultimately improving margins,” Lennar said.
“Additionally, our construction costs improved just over 2.5% in the first quarter and have decreased 12% over the last two years, even as labor remains constrained and materials face constant pricing pressure,” it said.
“We are, in fact, actually adapting to market conditions as they are and not waiting for the market to bounce back,” CEO Stuart Miller said during the conference call.
“Mortgage interest rates, which showed some early signs of easing towards the end of last year, have remained stubbornly over 6%, hovering around 6.2%-6.4% through most of our first quarter. With home prices plus interest rates at these levels, affordability remains the central challenge facing our buyers,” Miller said.
“The war in the Middle East is a wild card. It might end quickly and the world is a better and safer place, or it might trigger higher gas prices, higher inflation, and higher interest rates, and we’ll just have to wait and see,” he said.
“New leadership is taking a fresh look at efficiencies as well, together with new technologies. SG&A [selling, general, and administrative expenses] will continue to shrink, and the bottom line is that our overhead costs are coming down meaningfully throughout 2026,” he said.
In case you missed it: Supply of Existing Single-Family Homes Surges to Highest for February in 9 Years, Demand Stuck in the Deepfreeze.
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Right the price has dropped, but a buyer is probably getting 30-40% less of a house. Lennar’s lot and infrastructure costs cannot be reduced since their lot inventory is probably years old.
” designed and built to be more easily affordable – meaning lower priced” translate-cheap.
And what is the average size and price per ft.?
Need a bit more detail on this story.
Tariffs have caused huge price increases on their inputs for dimensional lumber, concrete, paint, fixtures and finishes.
there is a huge affordability crisis in this country, and you bitch about the homes being “cheap.” I’m so sick of this BS. you have no idea how tone-deaf this crap is.
You’re also ignorant about construction cost. RTGDFA and study what Lennar does. Note the word “manufacturing” in its description. This is modern methods of mass-production getting introduced to putting these products on the market for a lower price. That’s what ALL manufacturers do all the time. It’s a matter of survival.
I cannot believe that the first comment I get, posted within moments after the article got published, is this nonsense again. I get them on every article that deals with lower-priced homes offered by homebuilders to deal with this affordability crisis by introducing modern methods of building homes. But usually people at least wait a little while before posting this nonsense.
It’s like an automaker coming out with a nice well-performing has-everything-but-isn’t-gold-plated midsize car for $25,000, undercutting everyone in the market, and sales take off, and you goofballs diss it as “cheap” because it doesn’t have a V-8 with a carburetor (younger people might not even know what that is, lol).
Fair to say this average price drop is driven by the ~40,000 drop in average price for the “Central” region?
Other region new order average price didn’t move much from 2025 Q1, and in some cases increased (West and East).
Unfortunately their definition of “Central” makes it a bit hard to understand where exactly the price drops are occuring.
Central includes theses states: Alabama, Georgia, Illinois, Indiana, Maryland, Minnesota, North Carolina, South Carolina and Tennessee.
In terms of new orders, it looks like the one region with strong year-on-year sales growth is “East”, with other regions static or declining (West).
East is Florida, New Jersey and Pennsylvania, so guessing most of those new order increases are in Florida?
Average price of new homes in South Central is $232,000!
Guessing that is driven by Texas? South Central is Arkansas, Kansas, Oklahoma and Texas.
“this average price drop is driven by the ~40,000 drop in average price for the “Central” region? Other region new order average price didn’t move much from 2025 Q1, and in some cases increased (West and East).”
That’s a lie. Average price dropped substantially in ALL four regions in Q1 yoy. The only place where it didn’t drop was in “other” where Lennar sold “5” (five) homes, so that doesn’t matter at all.
East: -5,000
Central: -33,000
South Central: -15,000
West: -41,000
Total: -34,000
I should have specified I was looking at the New Orders table.
The numbers you quoted are from the Deliveries table. As you say, average price of delivered homes did fall in all four regions.
It’s wonderful to see builders strive to make more affordable product and benefit from manufacturing and material advances. There are a lot of good ideas out there for cutting costs with little to no quality impact, and it’s great to see some big builders push in that direction.