Lennar FY 3Q17 Earnings Call Notes

General sense of optimism

“we’ve continued to see strength in the housing market through the third quarter and have seen new orders, home deliveries and margins continue to be in line with or above our expectations. Generally speaking, in spite of the often noisy political environment, there continues to be a general sense of optimism in the market as jobs are being created across the country and wages are generally moving higher.”

Labor shortage translating into wage growth

“The often discussed labor shortage in many sectors of the economy is translating into wage growth. And while much of the data collected by the government doesn’t seem to reflect significant wage growth, the customers visiting our Welcome Home Centers are reflecting an optimistic sentiment and an ability to afford today’s more expensive homes.”

Rick Beckwitt

Business recovering in Houston

” With regard to Houston and to Florida, let me just address that right now starting with Houston. The Houston market is slowly recovering. All of our communities are open and doing business today. From a trade standpoint, it’s consistent with what I said. Trades are tight in the roofing area, the drywall area as you’d expect because there was a lot of damage associated with the interior of the homes. Folks are – those trades are really chasing that insurance business and it’s slowly getting better. From a power standpoint, we’re really not having any power connection issues in the Texas markets. So that’s a good thing. On the sales side of the market, we’re having good traffic, good solid traffic where people want to buy. ”

Still no power in Southern Florida

“Florida is sort of a mixture between north and south. In southern Florida, we still do not have the ability to get power connections. And as a result of that, that’s slowing down the business. That will catch its way up. We have not had the ability to press the power companies because quite frankly they need to address other concerns before they do the new home market. We are doing some things that I think are unique. We’re running some conduit between curb and the home in order to accelerate the connection. So when the power companies come out there to do the connects, we should bring things on pretty fast.”

Lennar FY 2Q17 Earnings Call Notse

Stuart Miller – CEO

Continue to see strength in the housing market

“We have continued to see strength in the housing market through the second quarter and have seen new orders, home deliveries and margins exceed our initial expectations. Generally speaking, in spite of the often noisy political environment, there continues to be a general sense of optimism in the market, there continues to be a perception that jobs are being created across the country and that wages are generally moving positively.”

*”a definitive reversion to normal”

“Overall, the attitude of our customers continues to confirm the sense that we have as business operators that the economic environment in general is strong and stable and improving. The slow and steady though sometimes erratic market improvement that we have seen for the entirety of this recovery continues to seem to be giving way to a more definitive reversion to normal.”

Seeing pricing power, millennials moving into market

“We continue to feel that limited supply and production deficits from the past years are now intersecting with land and labor shortage and we started to see some pricing power as we have moved through the selling season, somewhat offset however by construction costs increases. Additionally the economic realities of a constrained and supply of housing options and the economic realities of higher rental rates are beginning to have a rational impact on decision making for the first time home buyer as millennials are continuing to come to the housing market.”

This is animal spirits

“a lot of what’s driving people to the market is a sense of confidence, it’s animal spirits, it’s the notion that all of this is in exact science, interest rates and affordability and wages and pricing all play a part and what people can afford and how the math actually works out. But the confidence that people bring with them to the table about whether their job is table and whether there’s going to be a wage increase or there is opportunity for them to move and be mobile to the next job opportunity. Whether they have been to able accumulate a down payment or in excess of a down payment, or whether their family members that are able to help support with the gift or something else, all of these are moving parts that define this in exact science that we are all trying to kind of define going forward. So it’s kind of hard to wrap all of our heads around where the market is going, but the general trajectory is positive and even at the first time buyer level as the millennials start to unwind their doubling up and come to the market realizing that rental rates have gone up and there is a real reason to go ahead and purchase. That first time buyer segment is showing some optimism and some ability to be flexible in and around the affordability levels and as prices move up”

Jon Jaffe

Consumer sentiment is a driving factor

Yes I would just echo that the consumer sentiment is really a driving factor right now and we’re not seeing spikes in appreciation that are causing concerns and we’re really not seeing that at the mortgage table. So, I think it’s typical housing follows jobs and wages and that’s really a tailwind that we have right now.”

Spring selling season was a little bit stronger

“Yes I think you saw the traditional spring selling season that strength as you look at year-over-year and the slight uptick in comparison just show that this year was a little bit stronger reflective as our earlier comments seeing in consumer confidence, wage and job growth all reflecting an increased traffic at our welcome home centers, increased convergent rate of that traffic. So all building to a slightly stronger sales pace.”

Lennar FY 1Q17 Earnings Call Notes

Stuart Miller – CEO

Market conditions feel like they are strong and strengthening

“So let me go ahead and begin and start by saying that market conditions certainly feel like they are strong and strengthening. The slow and steady, though sometimes erratic, market improvement that we’ve seen for the entirety of this recovery seems to be giving way to a more definitive reversion to normal. While our first quarter operating results, particularly gross margins, reflect some of the sluggishness seen at the end of last year, our sales results went from tepid to better to strong as the quarter progressed. Limited supply and production deficits are now intersecting with land and labor shortage and this suggests, though not yet seen, but suggests, that pricing power is on the horizon as we move through the year.”

Customers are clear in their motivation

” As our traffic has increased, we’re getting some very direct feedback from our customers as they tell us what they are looking for, their timing and, sometimes, their motivation. There’s clearly a sense of general optimism in the market. There’s a perception that jobs are being created and that wages are actually starting to move upward. There’s a solidifying sense that the government has adopted a business-friendly posture and that will result in real changes to tax rates and to the regulatory environment. The banking world is making more overtures to small businesses and to mortgage borrowers and there’s a sense that borrowers can make their way through the process. Additionally, the upward direction of interest rates has encouraged some to get off the fence and consider purchasing a home rather than renting. Rents have risen and the prospect of higher purchase prices and higher interest rates makes a compelling case that today’s opportunity might be the best opportunity to leave those annual increases in monthly payments behind.”

60% of 18-35 year olds are living with parents, relatives and roommates

” Interestingly, the front page of U.S.A Today reports today that 60% of millennials ages 18 to 35 are living with parents, relatives and roommates and that is a 115-year high.”

Construction costs have risen in CA

“I think that as we think about our numbers, construction costs as a percentage of our sales price has probably moved up around 100 basis points and there’s most certainly pressure on construction costs in the labor constrained market ”

Mnuchin well aware that there will be winners and losers in a tax revamp

” I will say that I’ve had a recent opportunity to listen to Steve Mnuchin, the Treasury Secretary, who seems to be in a lead position there. And the two things that I take away from listening to him is that he’s very smart, very thoughtful in his approach and I frankly derived a lot of confidence listening to him walk through the thinking. The other thing that I walked away with is a sense that he and this administration are listening carefully knowing that there will be winners and losers, there will be ups and downs, in any configuration of the tax revamp and so there is, virtually, no ability to draw certainty today from what pieces and in what proportion they are going to be woven into a new tax program. ”

Houston a bit of a pickup

“I think some of that is driven by the impact of still, a little bit of sluggishness in Houston, but with regard to Houston, we have seen a pick up. We’re starting to see a little of an increase in rig count and we still have a divergence in sales pace between the higher priced and the lower priced ones. So, Houston was a little soft, but it looks like it’s, the picture is getting a little brighter there as we move through the year.”

Lennar 3Q16 Earnings Call Notes

Lennar’s (LEN) CEO Stuart Miller on Q3 2016 Results

Slow but steady housing market recovery

“We have consistently believed that we are in a slow steady though sometimes choppy housing market recovery and we have crafted our operating strategies specifically to position us well to grow steadily and consistently and to act opportunistically in these market condition”

Production levels are still too low to meet the needs of household growth

“we continue to believe that production levels in the 1 million to 1.2 million starts per year range are still too low for the needs of the American household growth that is now normalizing. Additional questions have been raised as the effect of an increase in interest rates relative to the recovery for first time homebuyers segment. We believe that there continues to be a growing pent-up demand for dwellings of all types across the country, though stronger in some markets than others”

First time home buyers have come back to the market more slowly

“First-time home purchasers have come back to the market more slowly than they have historically and more slowly than expected. While the growing percentage of our for-sale homebuilding business continues to be geared towards first-time purchasers, our broader new household strategy has targeted the rental market as well”

Margins impacted as move to shorter duration land

“Okay. So we have been pretty consistent Bob, in saying that we expect our gross margins to be drifting down. We highlighted that at the beginning of this year and as we move through last year as well. But we also focused attention on net operating margin primarily recognizing that as land that was bought at very low prices flow through our system, margins would be higher. As that land dissipated and we ended up with more shorter term land, our margins would – our gross margins would drift down. But we felt that as the recovery matured, we would continue to focus on bringing down our growth rate, focusing on efficiencies in our SG&A, as we have been articulating and really driving increased earnings through more efficient net operating margin.”

Industry average gross margin is at 21, 22%

“. Our view has been that our gross margins will continue to drift downwards. I think if you look at the average of the industry, if you look at what’s normalized gross margin in the industry, you are probably looking at 21%, 22%. And over time, we will probably drift in that direction. The industry average might even be lower than that. ”

Land and labor is expensive and hard to come by in this environment

” We are not focusing on stretching growth in an environment that just isn’t giving it easily. Land is expensive. Land is hard to come by. People are expensive and hard to come by. It’s hard to grow operations efficiently and effectively at an accelerated rate in a market where land and labor is really constrained. And so we have chosen to focus on operational efficiencies as a mechanism for driving profitability going forward.”

Rick Beckwitt

Starting to take less risk in land impacts margins, more wholesale

Yes. This is Rick. The natural evolution of a soft pivot is that you are starting to take less risk in land. Associated with that risk profile is a margin presence. You are looking for near-term opportunities, quicker turns. So gross margin will naturally come down and IRRs will come up. And so when we are going less long on some of these positions, it means that you are paying a little bit closer to retail than you were in buying wholesale.

Lennar 2Q16 Earnings Call Notes

Lennar’s (LEN) CEO Stuart Miller on Q2 2016 Results

Managing for margin now that recovery is mature

” we’ve noted in past quarter conference calls that given our now mature recovery, we have been and continue to carefully manage and limit our growth in order to grow the bottom line and to drive strong cash flow. We have moderated our top line growth targets to achieve a growth rate in the 7% to 10% range as we’ve redirected our management efforts towards maximizing our net operating margin.”

First time home purchasers have come back to the market more slowly than expected

“First time home purchasers have come back to the market more slowly than they have historically and more slowly than expected. While approximately 30% of our for sale homebuilding business continues to be geared to first-time home purchasers, our broader new household strategy has targeted the rental market as well.”

There’s a lot of heat in rental, we might see a little bit of softness but absorption will outstrip oversupply

“I think that we are starting to hear – everybody is starting to hear that there might be a little bit more heat in some of the rental markets. What I’ve heard articulated by one of the best and brightest in the rental market is that we’re probably coming to the later innings of a double header, the first game of a double header. We might see a little bit of softness for a period of time but it looks like and it feels like absorption is going to outstrip any kind of oversupply in fairly short order and we think that there’s a lot of run rate for the multifamily markets, for the rental markets going forward.”

Hard to produce at lower price points in CA

“California, in general though, it’s hard to produce homes at the lower price points because not only of land costs but also because of impact fees being as significant as they are. And so that tends to drive particularly, in Southern California, the Bay Area, a higher sales point. And at that higher sales price point, clearly, it’s hard to get significant momentum above, I think, the current levels.”

Seeing sustained interest from the Chinese buyer

“We are seeing a sustained interest, particularly in the Asian or Chinese buyer. We haven’t seen that fall off. So if you look at a place like Irvine, where it’s been very significant. We have good data at the Great Park. That’s remains very consistent and healthy, same thing in the Bay Area marketplace, so we’re seeing consistency there.”

Higher priced communities are dragging down Houston

” It’s really once you get above that $400,000 price point in the oil corridor, where sales are off and if you were to break out our business between our higher price and our lower price, what’s dragging Houston down is the higher price communities.”

Jon Jaffe

Overall strong sales in starter price points across geographies

Overall, we saw strong sales in different markets that tend to cover both starter price points and move up price points. For example, specifically, Northwest was strong across all segments. Southern California was strong, Southeast and Southwest Florida were strong, Charlotte and the Carolinas also strong, and Central Valley, which is a more affordable price point for California.

Houston was off the most

The place that was off the most was Houston. As you would expect, as we continue to see the effects of job loss there, and you see that also with our greatest increase in incentives in Houston, even though for the overall company, we’re flat.

Do see some lower demand in higher price points

” And clearly we do see some lower demand in the higher price points as compared to lower price points but, it’s generally it’s still a submarket driven.

Lennar 1Q16 Earnings Call Notes

Stuart Miller

Have only seen mild negative impacts on business from Fed

“Even while the month of December was defined by the first interest rate hike by the Fed since the great recession, which turned into capital market turbulence and fears of recession as we entered calendar 2016. We have seen only mild negative impacts to our business and have continued to be able to perform, as expected.”

We do not see telltale signs of recession

“To answer the questions directly, we feel certain that modest moves in interest rates tied to low unemployment and some wage growth will be a net positive for housing. We do not see the telltale signs of recession. Global terror seems to highlight that the U.S. is the safest place to be and to invest in the world and teach U.S. citizens focused right here at home. And that’s for the election. Well, they say that America always gets to the right answer right after we’ve tried all the wrong ones, we’ll see.’

Housing stock has been under-built

“As we’ve noted consistently over the past few years, the overall housing market has been generally defined by a rather large production deficit, and this is resulted in a growing pent-up demand. Stronger general economic conditions, including lower unemployment, modest wage growth, and general consumer confidence are still driving consumers to form new households and to rent and to purchase apartments and homes. We expect the demand will continue to build and come to the market over the next years, and will drive increased production at the deficit and housing stock ultimately needs to be replenished.”

Labor and land shortages will constrain supply

“Land and labor shortages will continue to constrain supply and constrain the ability to quickly respond to growing demand, while the mortgage market will continue to constrain purchaser’s access to mortgages. These conditions will continue to result in slow and steady positive homebuilding market conditions and will enable slow, steady, though sometimes erratic growth across our platforms.”

Recovery is mature

“We have noted in the past quarter conference calls that given the now mature recovery, we have been and continue to carefully manage our growth in order to grow our bottom line and to drive strong cash flow. We’ve moderated our growth targets to achieve a growth rate in the 8% to 10% range, as we’ve redirected our management efforts towards creating operating efficiencies and leveraging SG&A.”

Moving away from heavy land acquisition

“We’ve also talked consistently about a soft pivot in our land strategy away from the land heavy acquisition strategy in the early stages of the recovery. And we are now targeting land acquisitions with a shorter two to three-year average life. ”

First time purchasers continue to come back more slowly

“First time home purchasers have come back to the housing market more slowly than they have historically and more slowly than expected. ”

Digital marketing enables greater penetration

“we think first time homebuyers as most likely to decide to purchase a home when they’re getting married or one they’re having children. In a digital platform, we can target our message to people who are looking for wedding dresses or purchasing cribs, that’s a more targeted focused audience and it costs a lot less to target that group. Digital marketing enables a greater penetration to the people that we want to hear our message”

There’s been a shift from buy to rent

“relative to the empty nesters rethinking their living conditions, there has been some movement in the direction of rental versus homeownership there as well. So we’ve seen that the rental option, the reduction in homeownership rate is something that is broader than just affordability, it reflects also appetites and desires that have evolved since the recession. And we think that some of those trends will continue.”

There’s some dysfunction in CMBS markets

“Okay. So remember that we’ve been in the CMBS markets for a couple of decades now. We’re probably one of the most – we’re probably the most seasoned participant in those markets. We’ve recognized the ebb and flow of demand and supply in CMBS markets. And we recognize we see when the market dries up, sometimes there’s more demand than there is supply and we generally sit on the sidelines as we are right now. At those times, the demand side seem – tends to go away…the way we think about that market is in recognizing that ebb and flow uniquely relative to its market recognizing the dysfunction generally works to our favor, given our experience.”

Demand is strong but affordability is a question

“I think that we continue to see fairly strong demand. I think affordability is a looming question as prices have tended to go up. They tend to go up because the supply, we read about it, see it all the time both on existing homes and new homes just fairly tied and the demand as we emerging. It hasn’t emerged, but it’s still emerging and I think that there is a sizable pent-up demand.”

Rick Beckwitt

Things got better throughout the quarter

Yes, I would tell you from a – an overall standpoint, we saw good sequential improvements throughout the quarter, December being the lightest and clearly February being the strongest month, pretty much spread across every operating territory that we’ve got, and I’ll address Houston in a little bit. We saw that with regard to both home sales activity as well as pricing, so we’re optimistic that we’re entering the sale season

Jon Jaffe

Northern California remains very strong

“Northern California, the Bay Area remains very strong, really defined by a shortage of both housing and particularly in Silicon Valley by a shortage of skilled labor in the tech and biotech world. So that continues to feel demand there. And then in Sacramento, we’ve seen a nice recovery where that’s become a strong market.”

Not really seeing a recovery in the labor picture

‘Yes, we’re not really seeing a recovery on the labor picture…we’ve seen a very steady environment for us in terms of cycle time, very little increase in cycle time year-over-year. But that doesn’t mean that the labor market is improving any.”

Lennar FY 4Q15 Earnings Call Notes


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.”

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.”

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.”

Lennar FY 1Q15 Earnings Call Notes

Still in the early stages of protracted, but slow, housing recovery

“Consistent with our prior conference call messages, we continue to believe that we are still in the early stages of a protracted, slower-than-history-would-suggest housing recovery, and an early read from this year’s spring selling season suggest that the market is continuing to improve at a very steady pace. This recovery continues to be driven forward by a strong backlog of pent-up demand for housing that is constrained by the mortgage market.”

Multi year production deficit and pent up demand

“Pent-up demand is derived from a now multi-year production deficit that is continuing to grow even at current production levels. At the same time, volume growth has been constrained by overly conservative lending standards, a regulatory environment that discourages mortgage lending and a negative consumer bias overhang against homeownership. ‘

We continue to see outsized improvement in rental market

“we’ve seen and continue to see outsized improvement in the rental market in terms of low vacancies and higher rental rates. This trend, of course, has benefited our multifamily strategy rather dramatically, but also sets the stage for further improvement in the for-sale market as new households looking for a place to live compare monthly payments.”

Mortgage lending is starting to open back up

“it’s becoming more apparent that the mortgage market is loosening incrementally with time and enabling more demand to be realized as household formation begins to return to more normalized levels. ”

Downside for housing market is very limited

“We have believed and we continue to believe that the downside in the housing market is very limited and the upside is very significant. We believe that the market is downside supported by the many years of production deficits that have yielded a limited supply of both rental and for-sale housing in the country.”

We are continuing to undersupply the demographic needs of the country

“At 1 million homes of multifamily and single-family production per year, we are continuing to undersupply the demographic needs of the country and this will have to be made up.”

Labor and material costs are about $50 per sqft

“The gross margin decline year-over-year was also due to a moderation in pricing power, at the same time as labor, material, and land costs increased. Year-over-year, labor and material costs are up 6.6% to approximately $50 per square foot, but are flat sequentially with the fourth quarter. ”

Own 133k sites

“In the first quarter, we purchased 4,200 home sites totaling $421 million versus $505 million in the prior year’s quarter. This is consistent with our strategy articulated last year to softly pivot from longer-term land parcels to shorter-term deals. Our home sites owned and controlled now total 163,000 home sites, of which 133,000 are owned.”

Stronger traffic in Houston at the low price points, but slowing traffic at higher price points

“let’s talk about Houston because I know it’s in everybody’s thoughts right now. I’d tell you that across the board, we had good traffic in all price points. Definitely stronger traffic and absorption at the sub $350,000 price point; real, real strong between $200,000 and $300,000. As you got above the $400,000, $500,000 price point, it’s slowing down.

Traffic is still strong. The buyers there are just more cautious in pulling the trigger on the sales side. But we really think that the Houston market is a strong market. We decided not to chase prices down and focus more on gross margin in Houston. We’re very positive on the Houston market”

You have demand pushing up but supply constraints pushing down

“So, you have demand pushing up, you’ve got constraint pushing down, and all of this is happening with inventories very, very tight across the country, both on the existing and the new home and the rental side of the equation. So the market condition generally has been choppy.”

Bad weather wasn’t just confined to the Northeast

“you’ve seen some rather severe weather conditions in a number of parts of country that have really limited the ability of buyers to get out of their home and go look for a home if they’re even inclined to. And you’ve not just seen that in the Northeast where it’s been kind of most aggressively articulated. It’s in Dallas. It’s been in Atlanta. We’ve had weather conditions in a number of places across the country.”

Mortgage origination moving slightly from big to small but not enough to move the needle

“So the mortgage market, even though we’re seeing that originations are finding their way across smaller lenders and less traditional lenders in the market at large, it doesn’t move the needle dramatically to see the shift from big banks to others in terms of healing the mortgage market. It’s more about the regulatory environment softening, the punitive side being softened and lenders just feeling their way through this kind of turbulent landscape. ”

Land is another constraining factor

“Now a secondary limiting factor, because we have been constrained in production, the land development machine has not reemerged in this housing recovery in full force. So it takes time to get land entitled. I keep going back to the fact that there is a land shortage, and that means entitled developed land is in short supply. So if you see an uptick in the marketplace, land will continue to be a constraining factor.”