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'This is a tough market': Homebuilder Lennar CEO

The tone was cautious optimism, as executives from the major public homebuilders gathered Tuesday at a conference in New York City, sponsored by JPMorgan. They used the word "moderate" over and over again, in describing the current state of the housing recovery.

Demand for new homes is rising, but construction, so far, is well below historical norms. Some suggested that builders are still gun-shy from the recession. Builders say they are simply responding to a cautious consumer.

"This is a tough market condition. We have seen the market recover since the downturn, but the recovery has been slow, steady and in a pretty tight band," said Stuart Miller, CEO of Miami-based Lennar.

Stuart Miller, Lennar Corporation
Richard Drew | AP
Stuart Miller, Lennar Corporation

One of the nation's largest public builders, Lennar has hedged its housing bets during the recovery, investing in multifamily rental buildings and single-family rental homes. Like other builders, the company is steering clear of the starter home market. Only DR Horton, the largest U.S. builder by volume, has made a significant move in the starter home market, with its "Express Homes" brand.

Lennar's Miller said there may be demand for these homes, but most entry-level buyers can't get the mortgages they need to buy them. Builders also can't afford to build low-priced homes.

"When you start with a high land basis [cost] it's very hard to end up with a purchase price that the first-time buyer finds affordable," added Miller.

Single-family housing starts in April rose 3.3 percent, on a seasonally adjusted annual basis, compared to March, according to the U.S. Census. They were up 4.3 percent compared to a year ago.

"With respect to single family, the stair step recovery continues, but oh man is there still a ways to go," wrote Peter Boockvar, an analyst with The Lindsey Group. "Starts would have to rise by 33 percent just to get back to the 30-year average."

One positive playing into the market is continued low mortgage rates. Those rates were expected to rise this year but have actually sunk to three-year lows. Credit availability may also be easing.


"Credit availability is not what it was during the financial crisis, and we don't think it should be. It's been getting better and better over the last several years." said Mike Weinbach, CEO of mortgage banking at JP Morgan Chase. "The homeowner is getting healthier, the consumer is getting healthier, there is a lot of wind at the back, and we feel confident about the future of the industry."

The low supply of existing homes for sale, however, is a headwind, and is adding to the need for more new homes. The trouble is, the lowest supply is on the lowest end of the market, where builders are not active. The move-up buyer is where builders are focused, and so far that is paying off, mostly because that is where they can raise prices. It leaves the overall market as something of a mixed bag.

"New homes for sale remain below their long-term trend, and mortgage commitment rates are at their lowest levels since mid-2013," wrote Kristin Reynolds, an economist at IHS Global Insight, adding, "The fundamentals remain supportive."