Lennar FY 4Q15 Earnings Call Notes

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Stuart Miller

Certain that modest moves in interest rates will be good for housing prices

“Many have been concerned about the relationship between housing and interest rates. We’re quite certain though that modest moves in interest rates in the context of a positive economic environment will be a net positive for housing in general. This has been the case in approximately half of all prior positive interest rate environments.”

We think we’re earlier in the recovery because it’s been so shallow

“this has been a very shallow very slow and steady recovery unlike the kind that you would have expected in the context of such a deep and steep decline. It has been framed by mortgage availability and a variety of economic factors but because it has been slow and steady, we think that we’re probably earlier in the recovery cycle than one would expect for the duration that we’ve been at it.”

Land has become a lot more pricy than it has been in the past

“land has accelerated in pricing maybe even ahead of itself. So, in terms of the maturity of land pricing, we’re seeing that land pricing has recovered at a faster pace than the overall market. Land is still in short supply, so it is difficult to come by a location best located properties and the pricing is more of a retail nature than a deeply discounted nature. So the way we’re thinking about it is, we have a lot of runway ahead of us in terms of further recovery for the market as I’ve noted defined by the production deficit but at the same time with lands being a lot more pricy than it has been in the past.’

The west has remained very healthy

“In the West, the markets that remain very healthy, as you look at California’s overall market our sales pace was flat up just a little bit, compared to last year for the fourth quarter. And the Pacific Northwest our sales paces up year-over-year. Phoenix is flat to up a little bit and same with Nevada. So as you look at sales pace year-over-year very consistent, really don’t see any slowdowns in any of our markets out here.’

Expecting mid single digit increase in ASP next year

“look we’ve highlighted that you’ve got land costs that have been going up, you’ve got labor costs that have been going up, you’ve got pricing that is fitting in some market conditions and we’ll see how that evolves, we’re expecting kind of a mid-single digit increase in terms of ASP over the next year, as Rick properly point out.’

Labor tightness is hanging about the same

“Is it getting better or is it getting worse? I think it’s hanging around the same if we had a big spike up in volume for the industry, I think it would be very hard for the labor market to respond, it would be more constrained.’

There are real headwinds that need to be navigated

“I think that the market has headwinds that are very real and that have to be navigated. You’re hearing it from all of the homebuilders…You hear about land constraint, the difficulties that you see across the board, companies acquiring land, it’s difficult out there that’s a headwind. Labor is a headwind that — even though we feel that we’re advantaged in some of those ways, it’s a limitation.”