(Reuters) - Lennar Corp (LEN.N) said on Wednesday it was seeing an improvement in home sales in its new fiscal year as mortgage rates start to ease and posted earnings ahead of expectations, allaying concerns of a slowdown in the broader U.S. housing market.
The company’s shares reversed course to trade up nearly 10 percent following the comments. They were earlier marginally down after the company reported lower-than-expected home sales and orders for the fourth quarter.
U.S. 30-year mortgage rates have fallen over the past two months as the Federal Reserve officials have signaled that the central bank would likely slow its pace of rate hikes following signs of tightening financial conditions.
Applications for home mortgages jumped by the most in more than three years in the week ended Jan. 4 as mortgage rates averaged 4.74 percent, their lowest since April. They hit a multi-year high of 5.17 percent in the week ended Nov. 9.
The second-largest U.S. homebuilder said strong employment, wage growth and consumer confidence were encouraging buyers, and that the moderation in demand in the just-concluded quarter was temporary.
“We are optimistic that improved consumer confidence and wage growth combined with lower mortgage rates will spur increased activity as we move into the spring selling season,” Executive Chairman Stuart Miller said on a conference call.
Lennar, which put off giving its financial outlook for fiscal year ending November, said it expects to achieve its goal of selling more than 50,000 homes in the year, slightly below its previous forecast of 53,000 units.
Analysts said Lennar’s numbers were not as bad as feared in a market that continues to show stable demand.
“Sentiment on the (homebuilding) stocks has shifted more positively to start the year on hopes that the recent pullback in rates will re-energize growth,” RBC Capital Markets analyst Michael Dahl said.
Rising labor and raw material costs have led builders to increase home prices. This, combined with rising interest rates had prompted some homebuyers to defer their purchases.
Lennar hinted that it might increase incentives to boost sales if buyers continue to wait out.
“Our intent is to build and deliver more than 50,000 homes this year, even if it’s at the expense of some margin,” Chief Executive Richard Beckwitt said.
The company’s sales rose 64 percent to 14,154 homes in the quarter ended Nov. 30, helped by the purchase of smaller rival CalAtlantic last year, but missed analysts’ expectation of 14,485 units, according to IBES data from Refinitiv.
Orders soared 44.2 percent to 10,611 homes, but missed estimate of 11,174 units.
Excluding items, Lennar earned $1.96 per share, beating the average analyst estimate of $1.92.
The company’s shares, which had plunged 36.2 percent in the past 12 months compared with a 27.6 percent fall in the PHLX Housing Index .HGX, were up 9.7 percent at $47.03 in late trade.
Reporting by Ankit Ajmera in Bengaluru; Editing by James Emmanuel and Sweta Singh