We recently published a list of 10 Best Residential Real Estate Stocks To Buy. In this article, we are going to take a look at where Lennar Corporation (NYSE:LEN) stands against other best residential real estate stocks to buy.
Home Buyers Have More Bargaining Power than Sellers, Says Economist
The rate hikes which started in March 2022 as a battle against inflation are coming to an end as the Federal Reserve finally decided to cut rates for the first time since 2020. The rate cuts were kicked off with a half-percentage point reduction on September 18. This long-awaited move lowered rates to about 4.875%, at the midpoint. With an optimistic view in mind about inflation cooling off, the big rate cut will be catering to the employment slowdown. The news just doesn’t end here since the officials have pointed to another half-point reduction before the year’s end.
For the housing market, the big rate cut could be taken as a signal from the Fed to reverse the mortgage lock-in effect but the extent of easing matters. While an aggressive reduction in rates will reduce financing costs, create an inventory of existing homes, and reduce pressure on home prices, a gradual reduction won’t be of much value for the homeowners who are holding on to their early-pandemic low mortgage rates. The anticipation of a rate cut at the September Fed meeting has brought down mortgage rates to as low as their lowest since February 2023. However, the dropping mortgage rates are a double-edged sword as they could potentially raise the demand so much thereby making home buying even harder.
In an interview with CNBC, Senior Economist Orphe Divounguy from Zillow emphasized the impact of rate cuts on housing affordability. Although affordability remains a challenge, the market is improving. In his opinion, the best time to act for home buyers is right now as the current scenario offers them a perfect entry point with more options and bargaining power being somewhat shifted from the sellers to the buyers. The number of active listings on the real estate platform has gone up by 22% since last year. Although short-term rates are expected to decline, longer-term rates like mortgage rates could remain at the current level. He expects more buyers than sellers in the market with improving affordability. Sellers will also be in good shape as well-priced and well-marketed homes are selling in just 20 days, according to company data.
With that being said, let’s move to the 10 best residential real estate stocks to buy.
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A construction crew installing roof tiles on a newly built row home.
Lennar Corporation (NYSE:LEN)
Number of Hedge Fund Holders: 60
Lennar Corporation (NYSE:LEN) is another prominent American home builder that constructs affordable, move-up, and active adult homes under the Lennar brand name. The company offers mortgage financing, title, and closing services under its Financial Services segment while mortgage loans are originated by LMF Commercial. Lennar’s Multifamily segment develops high-quality multifamily rental properties.
Lennar falls among the nation’s largest builders of quality homes with its 70 years of operation and in terms of deliveries, revenues, and net earnings. Homebuilding operations are the most substantial part of Lennar’s business and generated $33 billion in revenues in fiscal 2023. The firm has been resilient against the uncertain microenvironment. The company grew in its current markets by pricing homes based on demand at levels that would maintain the sales pace, also known as the dynamic pricing model. Furthermore, the firm’s strong balance sheet and solid liquidity enable sufficient financial flexibility as it moves ahead.
Lennar continues to drive momentum through 2024. Although interest rates rose for most of the second quarter, the home builder remained resilient and performed well. The firm recorded a 19% increase in new orders and a 15% increase in deliveries year-over-year. In homebuilding, revenues increased 9% to $8.4 billion as compared to $7.6 billion in the prior year period. The firm is on target to deliver approximately 80,000 homes for the year while it plans to completely move to a pure-play and land-light operating structure across its homebuilding platform and each of its 40 homebuilding divisions, to drive better growth and cash flow.
The status of a leading American homebuilder, the capability of building affordable housing in strategic markets addressing the existing supply deficit, and a strong balance sheet deem Lennar Corporation (NYSE:LEN) another top residential real estate stock to invest in.
Overall, LEN ranks 2nd on our list of 10 best residential real estate stocks to buy. While we acknowledge the potential of LEN as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than LEN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.