(Reuters) -Lennar Corp reported third-quarter profit above Wall Street estimates on Thursday, as a historically low housing supply kept demand strong and declining fixed mortgage rates lured in more skittish buyers to the market.
With the popular 30-year fixed mortgage rates having declined to about 6.1%, compared with a high of 8% months ago, previously skittish buyers are returning to the housing market and boosting already robust demand for new construction.
The U.S. Federal Reserve on Wednesday cut interest rates by 50 basis points. Expectations of further rate cuts and the corresponding easing in mortgage rates have already driven shares of U.S. homebuilders to all-time highs.
“We fully expect an even stronger, and more broad-based demand cycle, as rates move lower. Lower rates and controlled inflation will likely boost confidence,” said Stuart Miller, co-CEO of Lennar (NYSE:).
The company, however, reported a year-on-year drop in third-quarter gross margins, at 22.5%, owing primarily to an increase in land costs and lower per square-foot revenue.
Shares of the company, which have been trading at all-time highs, fell about 3.6% after the bell.
A major tailwind for homebuilders amid high interest rates has been the shortage of existing homes being put up for sale in the market, a trend that is set to continue.
Homeowners who bought properties during the era of cheap debt still remain unwilling to sell, as they would have to upgrade to a new home at current interest rates.
The company said it expects to deliver between 22,500 and 23,000 homes in the fourth quarter, compared with analysts’ average estimate of 22,916 homes, according to LSEG data.
Lennar delivered 21,516 homes in the third quarter ended Aug. 31, higher than the 18,559 units a year earlier.
The second-largest U.S. homebuilder by sales posted earnings of $4.26 per share for the quarter, beating average analyst estimates of $3.63 per share, according to LSEG data.
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