December has started on a good note for Lennar Corporation (LEN). A seven year court battle ended recently for the national homebuilder, thus reaffirming its integrity and reputation.
Earlier this week, Lennar was awarded $1 billion by a civil jury for a defamation case against California developer Nicolas Marsch III and his company, Briarwood Capital LLC as the latter was found guilty of defamation and conspiracy to extort money from Lennar.
Lennar is one of the leading homebuilders in the U.S. Previous week Lennar experienced a recent upward movement in share prices along with other homebuilders like KB Home (KBH), PulteGroup, Inc. (PHM) and The Ryland Group, Inc. (RYL); due to release of better-than-expected building permits data.
On Nov 26, the U.S. Department of Commerce announced that building permits for the month of October came in at 1034,000. The figure was above the consensus estimate of 935,000 and also grew 6.2% sequentially from September’s figure of 974,000. Single-family permits grew 0.8% higher than the previous month’s figure of 615,000. In fact, building permits were at a 5-year high in October.
The strong housing data clearly indicates that the recent increase in interest rates has not completely dampened the housing recovery. The sharp increase in interest rates has led to higher cancellation rates and lower orders for many homebuilders. However, most analysts believe that interest rates are still below historical levels. Housing is thus still affordable and demand remains intact.
Supply, however, remains limited by low home inventories, both for new and existing ones. A shortage of land and labor is also restricting the production of homes. Home prices have thus, started moving up with market demand gaining momentum but supply remaining limited. In fact, rising home prices and thinning home inventories have created a sense of urgency among homebuyers to buy a house before prices increase further.
With the ongoing speculation that the Fed could taper or end their $85-billion bond-buying program in 2014, there is a good chance that interest rates could shoot further up.
Lennar holds a Zacks Rank #3 (Hold).
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