Lennar FY 2Q15 Earnings Call Notes

More than just a homebuilder

“Lennar has become not only the most profitable homebuilder in the business, but we continue to grow and mature our additional business segments that represent significant opportunity for the future. Simply put, Lennar has become much more than just a homebuilder.”

Spring selling season continues to confirm consistent improvement

“As we noted in many of our prior conference calls, and some of our other public statements, we continue to believe that we are still in the early stages of a multi-year, slow but steady housing recovery. This year’s spring selling season confirms that the market is continuing to improve at a very consistent pace.”

Limited supply growth against pent up demand

“the production deficit of both rental and for sale homes relative to the need for housing in the United States continues to create pent-up demand against a very limited supply.

Without a dramatic increase in the number of homes built in this country, we will continue to be short dwelling units per growing population, supply is limited and demand is building.”

Mortgage markets still tight

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

First time purchasers back more slowly than expected

“first time purchasers have begun coming back to the housing market more slowly than expected and more slowly than they have historically. They’ve had the most difficult accessing the mortgage market, credit limitations have been most constraining to the first time buyers, and although that is beginning to open up as many have reported, they are not yet jumping in to the market place and they are also the most susceptible to price and interest rate increases.'”

Downside is supported by production deficit. Almost no likelihood of foreclosures

“We believe that the market is downside supported by the production deficit that has yielded a limited supply of both rental and for sale housing in the country. Any pullback in the housing market will be short lived as there is a need for shelter across the country and there’s very little inventory and almost no likelihood of mortgage foreclosures given the stringent underwriting standards of the pas years.

Targeting high end first time buyers and rental markets

“we have continued to focus our attention primarily on the higher end first time buyer and the move-up market, as our average sales prices reached an historical record high of $348,000 this quarter.

While approximately 25% of our home building business continues to be geared to first time home purchasers, our broader new household strategy has been aimed at the rental market”

5th largest non-bank lender in the country

“we’ve expanded our retail platform to become the 5th largest retail, non-bank lender in the nation, and we are able to capture an expanded share of the refi business as it exists.’

Seeing improvement across markets including first time buyer

“it’s really across the board that we are seeing improvement across markets. That includes the first time homebuyer. We are starting to see the first time homebuyer come back to the market place, but from basically a very flat level of virtually non-existent first time homebuyer to some beginnings of improvement.”

It feels a lot better, like they’re coming back, but still constrained

“It feels a lot better, it feels like the first time buyer is coming back but they are not jumping into the market, still constrained by the mortgage market. So we’ll have to kind of sit, watch and wait till the next quarters to see how that first time buyer market continues to evolve.”

First time buyer is very sensitive to price fluctuations

“As Rick Noted, you are seeing some pricing power and the first time buyer is probably the most sensitive group to price increases and interest rate fluctuation. So I think it’s going to be a push and pull program for some time to come, as pricing power continue to be pretty strong.’

Bringing down duration of land on our books

“We’ve been very focused on bringing down the duration of land that we are bringing on our books unless we find a really unique opportunity as with the Fremont property.”

We’re still in the early stages of the recovery

” we think we are in the early stages of this recovery. This has been a slow, steady recovery that’s been defined by pretty shallow levels of production. And those shallow levels of production are creating short supply for a growing demand and we think that as we look ahead, this recovery remains fairly shallow sloped, but consistent for a number of years to come.”

Floods in Houston

“the weather in Houston was interesting this quarter. It was a little rainy, some people heard on the news, and the rains absolutely shut down the market for a number of days during the quarter. There were days where our offices were actually shut down because there was not electricity and the floods were significant. ‘

Acquisitions of public companies don’t make sense to us because you’re just acquiring land and we think we can do it cheaper without the goodwill

“With regard to though and our views on consolidation, acquisition, it’s a tough go for us, because we are I think probably the best land acquisition machine out there.

And when you are buying companies today, you are buying land assets, and we had found that we are able to buy those assets through negotiations with sellers at a cheaper price than acquiring the company and paying the goodwill associated with the company.

We have continued to look at smaller acquisitions and you can and we’ll continue to do so. But with regards to the larger public companies don’t seem to pencil out for us today.”

New mortgage regulations take effect in October that have potential to create a minor disruption

“this is a rough and tumble mortgage market that is defined by a regulatory environment that has a lot of laws of unintended consequences coming through. And the new legislation, the new regulations that will come in to affect in October will have some ripple effect.

We are all over this and Bruce has been heavily focused on thinking through the nuance changes that will come in to the market in anticipation of some minor disruptions. We’ve been fortifying our mortgage company; I think you have seen it in the results from the numbers. But behind the scenes in the operations of our mortgage business, we recognize that there is potential for disruption and we are trying to stay ahead of the curve.”

It’s easier for larger players to adapt to regulation

“As I noted, there are a lot of unintended consequences embedded in some of this legislation or regulation I should say. I think in many of the instances the consequences are that larger players are benefitted and the larger player’s ability to adjust, to adapt and to spend the dollars to be ahead of some of the regulatory changes works to the benefit. We certainly think.’

We have advantages that small builders don’t

“I think the smaller homebuilders have had difficulty getting up running and engaged in a capital constrained market that has favored larger builders. They’ve had more difficulty accessing land. I think given the fact that we have a large mortgage subsidiary that’s able to do a large portion of our business versus a smaller builder that might have to depend on outside lenders. I think it does additionally slant the table in the larger builders favor.”

The mortgage process is very invasive and frustrating for the homebuyer today

“I will just add to Stuart’s comment that the mortgage process today is very invasive, very frustrating for the homebuyer, and the close working relationship that you are hearing and Stuart and Bruce described between homebuilding operations and mortgage company ready to sell takes a much better customer experience.”

There are continued cost pressures, especially on the labor side

“This is Jon. There’s continued pressure, we see it more on the labor side, perhaps than the material side in today’s world especially as start between single family and Multifamily pickup. And so some areas from framing and drywall, masonry, you see pressure there.”