Lennar 3Q15 Earnings Call Notes

Homebuilding market continued to improve at fairly consistent pace

“Our results reflect the slow but steady growth in the overall homebuilding market. This year, summer season and the spring selling season before it confirm that the market is continuing to improve at a fairly consistent pace.”

Balance sheets are starting to be repaired

“A growing number of individuals’ balance sheets that were impaired by the economic downturn are starting to be repaired as the economy improves and as time passes and U.S. population continues to grow.”

Supply is limited but this market could not support a strong increase in production

“Even though supply is limited as demand is building, we do not anticipate a surge in production. Frankly, I don’t think that the current market conditions could support a strong increase in production. A combination of land, labor and mortgage availability are simply put limiting factors to a surge in production.”

A shortage of entitled land

“Limited capital for land and land development has left entitled lands in short supply while growing demands has driven up land prices. In most major U.S. market, the ability to grow quickly is limited by the available land, and the market’s ability to bring new land to entitlement is limited by a constrained capital market for land developers…Land continues to be the most challenging competitive environment in the homebuilders universe today.”

Labor has also become a limiting factor

“Running a close second, labor has also become a limiting factor. The slow and steady recovery in housing did not signal to the labor market that it was time to come back to work in the sector, and many found work elsewhere. Today, the entire labor market has tightened and rapid growth in housing production will be limited by available labor.”

Regulatory environment for mortgages remains tough

“Finally, the regulatory environment for mortgages remains challenging and limits the number of entrants for the for-sale market. QM and QRM rules together with the ATR, that is the ability to repay rules, continue to restrict qualified purchasers from accessing the mortgage market.”

Don’t want to equate this to the last cycle. Labor environment much different

“one thing I don’t want to do is start equating to the last cycle, because this recovery is very, very different in its composition. We highlighted that there are some interesting and somewhat unique limiting factors. I highlighted land. I highlighted labor and I highlighted mortgage availability. And while land had been constrained in prior cycles, the labor constraint today is a limiting factor that is somewhat different than we’ve seen in the past and mortgage availability is clearly a very different overlay in this cycle.”

Houston is still decent overall energy corridor has been hit though

“Well, this is Rick, I’ll talk about Houston. I would say that the Houston market is still overall a pretty decent market. Clearly with the decline in oil, the energy corridor there has been hit which is pretty much the far west side of the market.

Higher price points have been hit harder than lower in Houston

“Now, if you look at that, it hasn’t been across all price points. The lower price points, let’s say, sub-$300,000, $350,000 are performing pretty well. It’s just when you get up in that $350,000-plus, the price point sales has been impacted and have slowed. Those would be the big master plan communities that are on the west side of town.”

TRID is implemented October 3

“October 3rd is the date that TRID is implemented for new applications, and our team has been very focused with the software vendors and with training to make sure it goes as smooth as possible.”

The land market is capital constrained

“I think that the land market is constrained in lot of levels, not the least of which is the capital constraint. The traditional lending avenues have remained close to the land asset as a basis for opening doors to lending. And so as production is really being forced to expand to normalize, land is behind the eight ball, and the enabling factor – that is, the access to capital – is continuing to constrain the ability to entitle new property.”