Lennar (NYSE: LEN) is one of the top homebuilders in the country. It built more than 50,000 homes across 59 markets in 22 states last year. It's a top-three builder in more than half of those markets.
Given its size and leadership position, Lennar has its fingers on the pulse of the housing market. That heartbeat is strong, according to comments by Lennar's management team on its recent quarterly conference call. Here's why they believe the current homebuilding boom will continue for quite some time.
It's the best of times, with no signs of stopping
Lennar's Executive Chairman Stuart Miller discussed the current state of the homebuilding market on the second-quarter call:
From a macro perspective, the housing market remains very strong as these are the best of times. Demand has continued to strengthen, while the supply of new and existing homes has remained constrained. New home construction cannot ramp quickly enough to fill the void of the production deficit that has persisted over the past decade.
For decades, America started an average of 1.5 million homes per year -- both single-family and multifamily -- until the Financial Crisis. Since then, the country has only begun an average of 1 million homes per year. That's created an enormous deficit. Stuart noted that "while some question whether that deficit is 1 million homes or 5.5 million homes, the bottom line is that supply is short."
Meanwhile, builders can't easily fill that gap because of land, labor, and supply chain limitations. As a result, "supply is short and is likely to remain that way for some time to come."
On the other side of the equation, Stuart noted that "demand is strong and growing," pointing out that "millennials are moving out of their parents' homes and forming families. Apartment dwellers are finding a first-time home." On top of that, he added:
Yesterday's first-time homes are selling at higher prices, and that equity is enabling first-time move-ups. Yesterday's move-up home is selling at a strong price and with increased equity enabling customers to consider and purchase a larger home. The upward spiral of a strong housing market is in full swing.
With low supplies and strong demand, home builders have a long runway ahead.
Structural changes are adding a new element
Stuart pointed out that traditional homebuyers aren't the only ones driving demand:
The housing market is not only very strong, but it is also going through some very interesting structural changes that will promote stability in the market and extend housing benefits to the breadth of a diverse society. The iBuyer space promotes liquidity, frictionless transactions, and enables mobility, while professionally owned single-family for rent (SFR) is providing workforce housing with social equity and upward mobility that has never existed before. These changes will also act as circuit breakers for the cyclicality of the housing market in the future. But for now, the housing market is strong while it's evolving in some very constructive ways.
He specifically pointed out on the call that iBuyers, led by Opendoor, are helping solve the issue of coordinating the closing of a new home. That's addressing the problem of closing delays that have impacted home purchases in the past while eliminating costly interim measures such as double moves or double housing costs.
Meanwhile, SFR platforms provide renters with access to the single-family home lifestyle while they build their credit and savings for a down payment. It also provides a market for builders like Lennar. It can construct more homes and make a growing portion of that stock available to more families through a rental program for those who can't yet afford to buy a home. Those benefits led the company to form the Upward America Venture. The SFR platform has the financial capacity to acquire more than $4 billion new single-family homes and townhomes from Lennar and other builders that it will rent in high-growth markets across the country.
The building boom is showing no signs of cooling off
Housing demand remains strong while homebuilders can't ramp up supplies fast enough to fill the gap. On top of that, structural changes brought on by iBuyers and SFR platforms are helping improve the housing market's liquidity, access, convenience, and longer-term stability. Because of all that, Lennar believes the homebuilding boom will continue for quite some time.