Lower-rate loans and other incentives have helped the biggest homebuilders sell new houses at a decent clip this year, even as stubbornly high mortgage rates weigh on sales of existing homes, The Wall Street Journal says.
A drop in profit posted by some companies, however, shows how dependence on those incentives comes with a cost that threatens to drag on homebuilders into the new year amid fading prospects of lower interest rates.
Homebuilder Lennar says the average price of each of its homes sold slipped about 2.5% in the quarter, denting profit margins.
“The shortfall in margin resulted from increased incentives on homes sold and delivered within the quarter,” says Stuart Miller, the company’s co-chief executive, on a call with analysts Thursday.
Looking forward to 2025, builders will have to decide to what degree incentives will be necessary. Some speculated that buyer-friendly offers could wind down as mortgage rates settle and potentially come down, but such chances are now weaker after the Fed on Wednesday signaled greater doubt over how much it would continue to cut interest rates going forward.
