Lennar, America's Second-Largest Homebuilder, Is Increasingly "Optimistic" About the Housing Market

The Federal Reserve's recent interest rate cut has injected signs of life into a housing market which has languished in the face of higher interest rates. 

This past week, mortgage applications soared nearly 30% for one of the largest week-over-week jumps in recent years, according to Charles Schwab Chief Investment Strategist Liz Ann Sonders. That jump coincided with the 30-year Treasury declining to 6.13%, its lowest point in three years, according to data sourced from Mortgage New Daily.

However, for America's second-largest homebuilder, the trend is only cause for "optimistic" — and not a whole lot more yet. In its third-quarter earnings, Lennar  (LEN)  reported that its earnings declined 46% year-over-year, while sales declined 6.6% as a product of weaker housing market activity and lower selling prices.

The company says that it delivered 21,584 homes (vs. estimates of 22,414) in the quarter, reflecting the tepid demand seen in the market. The miss on deliveries comes in spite of "incentives and price adjustments to match market conditions." In other words: meeting buyers where they are right now. 

Really, the only consolation was in the future: new orders grew 12% year-over-year to 23,004, an early sign of reignition in the housing market. The company, and other similarly-situated homebuilders like D.R. Horton  (DHI) , aren't necessarily out of the woods yet, though.

The Fed Dot Plot, which represents the expectations of America's central bank leadership, show short-term interest rates are expected to go lower. However, the Fed has no control over longer-term interest rates, like the ones that affect mortgage rates.

Richard Barrington, Financial Analyst for Credit Sesame, warns that the Fed's cut doesn't necessarily mean lower borrowing rates, particularly on their mortgages. 

You can see that in action even in the last few days. Despite a decline in rates on Wednesday, the 30-Year mortgage rose Thursday to 6.37%, reflecting greater uncertainty from bond traders. 

Even if bond traders did buy into the Fed's expectations, it could take awhile until rates are low enough to really revitalize the market, in large part because home prices are still unaffordable to many Americans.

Comerica Wealth Management's Eric Teal says that, "We anticipate 2% decline in mortgage rates is needed to jump-start the housing market given the lock-in effects and recency bias." 

And with just two more cuts on the Fed's Dot Plot through year-end, and tons of economic uncertainty, getting that kind of decline could end up taking awhile.