Discounts to move new homes have halved Lennar's gross margin since 2022

Sales in August 2019 were at the same 57,000 homes ^[6]. Inventory has grown 50% since that month ^[1], so the stock then was about 325,000 homes, or roughly 5.7 months of sales ^[1]. Dividing today's 487,000 by 57,000 gives about 8.5 months ^[2], the supply figure in the Census data ^[3].

Of the 487,000, some 261,000 were under construction, 5.8% fewer than a year earlier ^[4]. Richter attributes part of that drop to houses finished without a buyer and moved into the completed column ^[4]. Completed homes for sale held at 112,000, up 47% from August 2019 ^[5]. At August's pace those finished houses alone equal about two months of sales ^[3]. Richter wrote that these spec homes, most of them ready for move-in, tie up a lot of builders' capital and leave builders very motivated to sell them ^[2].

Lennar's disclosures show what that motivation costs. Its average selling price includes all incentives and mortgage-rate buydowns ^[7], and it fell 24% from the third quarter of 2022 to $372,000 in the third quarter of 2026 ^[8]. That puts the 2022 figure near $489,000 ^[4]. Apply each quarter's gross margin, 29.2% then and 15.8% now ^[9], and gross profit per home falls from about $143,000 to about $59,000, a drop of roughly 59% ^[5]. The shares are down 56% from their September 2024 high ^[10].

The Census median understates that discount. It counts only prices written into contracts, and at $393,700 it sits 14% below its October 2022 peak ^[11], ten points less than Lennar's decline over nearly the same span ^[6]. One builder against a national median is a loose comparison, and Richter describes Lennar as aggressive on price ^[7], so the gap probably overstates the industry's average concession. Big builders as a group have cut prices, piled on incentives, bought down mortgage rates and found cheaper ways to build, according to Richter, who calls the buydowns costly ^[13].

Richter wrote that this inventory is the notorious housing shortage the industry keeps invoking to push prices up ^[1]. The count covers new single-family homes for sale only ^[1].

Lennar's 15.8% has a benign reading. It is about a point below the company's 2018 margin ^[9]. On that view 2022's 29.2% was the outlier, and a builder selling into the 2019 sales pace ^[6] is earning roughly its 2018 margin. A second reading is that the shrinking pipeline ^[4] works the stock off without further cuts. The third is that 8.5 months of supply ^[3] keeps pushing net prices down until margins go through the 2018 level. I think the third is closest. The 2019 sales pace now faces about 8.5 months of supply against about 5.7 then ^[1], and the margin is already below 2018 with 50% more stock than in 2019 to sell ^[1]. The view is wrong if the three-month sales average, up 0.6% from a year earlier ^[12], starts climbing while the contract median holds near $393,700 ^[11].