Home-builder Lennar announces quarterly earnings today. The company is in a good position to benefit from an improving housing market.
The number of vacant houses available has fallen dramatically. And that’s an incentive for companies like Lennar to start building again.
Brad Hunter is chief economist with Metrostudy, a housing-market research company.
“Now inventories are actually quite tight in about a third of the markets around the country,” says Hunter.
Lennar is known for selling homes that come fully stocked with furniture and appliances. A strategy that Hunter says has “been very successful for them.”
He also credits the foresight of Lennar executives who have a long-standing policy of snapping up properties at times when other real estate companies retreat.
“They’re one of the few builders that really went long on land,” says Hunter. “And they bought land throughout the whole downturn.”
That strategy could pay-off now that the housing market is again showing signs of life.
“Demand is improving tremendously. Overall, in a lot of markets, the total volume is still low, but the projects that are there are doing well,” says Hunter. “Some of the markets that got hammered are coming back really strongly. Phoenix is one example. Naples/Fort Myers is another example; South-east Florida, even the California markets are enjoying a rebound.”
Demand is up for a variety of reasons.
“We have very low mortgage rates. We have good affordable house prices. And they seem to be rebounding, so that fear of buying a home and seeing it fall in value has disappeared. And we have a lot of pent-up demand,” says David Crowe, chief economist with the National Association of Homebuilders. “We have people who have been waiting for two or three or more years to see those market conditions improve, and now they’re taking advantage of that.”
But there is a catch.
“While people can get mortgages and mortgages are very affordable, the underwriting standards -- the requirements to get a mortgage -- remain tighter than they need to be,” says Crowe.
In contrast to the loose standards during the booming housing market, Crowe says bankers over-corrected in the wake of the Great Recession.
The same thing applies to housing appraisals.
“They now are extremely difficult and now often result in a failed sale because the appraisal doesn’t meet the price that the buyer and the seller have agreed to,” says Crowe.