Despite falling mortgage rates, housing demand is difficult to predict. Let’s take a look at homebuilder quarterly results so far this earnings season.
Lennar (LEN) and KB Home (KBH), two of the largest U.S. home builders, reported third-quarter net new home orders that were lower than Wall Street expectations.
Net new orders represent the number of new sales contracts entered into and signed by buyers, less cancellations of customer home orders booked during the period. Investors and analysts pay close attention to this number because it is a leading indicator of homebuilder housing activity.
Lennar, the nation’s second-largest homebuilder, announced last month that net new orders for the quarter ended Aug. 31 rose 4.7% from a year earlier to 20,587. That was lower than the 20,827 orders expected by analysts, according to Bloomberg data.
Homebuilder KB Home also reported in September that net orders for the period ending August 31 were disappointing. According to construction companies, the number of orders received was 3,085, down 0.4% from the previous year, lower than analysts’ expectations of 3,345.
Part of the reason for the failure is the difficulty in determining how much recent changes in mortgage rates will affect buyer demand. Mortgage interest rates have hovered between 6% and 7% this year. And in June, interest rates were hovering just above and below 7%.
Read more: When will mortgage rates fall? Outlook for 2024 and 2025.
“It may be embarrassing that we couldn’t model it more clearly, but June and July were clearly difficult months,” John Roballo, senior equity research analyst at UBS, told Yahoo Finance in an interview. He spoke at
From a buyer’s perspective, Robalo added, “There was uncertainty about where interest rates were going to go. There was also uncertainty about where the economy was going and the Fed was going. There was increasing uncertainty about the election.”
Two of the largest U.S. home builders, Lennar (LEN) and KB Home (KBH), reported weaker-than-expected third-quarter profits on home orders, a sign that other companies may report. Revealing (Photo: Justin Sullivan/Getty Images) (Justin Sullivan, via Getty Images)
Despite the Federal Reserve’s massive interest rate cut in September, the uncertainty does not seem to be going away. Investors were betting on future interest rate cuts, and mortgage rates were already trending lower.
It’s unclear how much it will fall. The average interest rate on a 30-year fixed mortgage rose 20 basis points last week to 6.32%, according to Freddie Mac data. This was the largest week-on-week increase since April.
Read more: Is now a good time to buy a home?
In early October, Goldman Sachs revised its year-end forecast for 30-year conforming mortgage rates to 6% this year and 6.05% in 2025, down from previous expectations of 6.5% and 6.1%.
The company’s strategists said in a note that there is “limited room” for a significant decline. They believe that the decline in mortgage interest rates has almost come to an end.
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Robalo warned that other homebuilders are also likely to report third-quarter net order backlogs this summer due to changes in interest rates. More construction companies are preparing to report quarterly earnings in the coming weeks, with Pulte Group (PHM) and NVR (NVR) on October 22nd and DR Horton (DHI) on October 29th. Report.
Dani Romero is a reporter for Yahoo Finance. Follow her on X @daniromerotv.
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