Is Lennar Finally Turning the Corner After Its Housing Slump?

Key Points

• Homebuilding companies continue to battle against significant headwinds and put up meager returns.
• Lennar saw underlying improvements in its latest quarter, but failed to put up strong results across the board.
• Mortgage rates are back on the rise, creating a more challenging setup for homebuilders.

Homebuilding stocks have been in a rut for quite some time. The SPDR S&P Homebuilders ETF NYSEARCA: XHB is a commonly used proxy for this industry's performance. The fund has greatly underperformed the general market, with returns of 10% in 2024, -0.7% in 2025, and a single-digit return in 2026. Low housing affordability, driven partially by elevated interest rates, has led to steeply declining revenues and earnings across the industry.

Investors just got their latest look at the status of the housing market. Lennar NYSE: LEN, one of the country’s top homebuilders and a Berkshire Hathaway NYSE: BRK.B portfolio company, recently reported earnings. Lennar’s report was decidedly mixed, but multiple important variables showed signs of improvement. It is possible the worst is over for Lennar, but homebuilders generally continue to face a difficult macro backdrop.

Lennar’s Mixed Report: Sales Miss, EPS Beat, Delivery Guidance Down

In its fiscal Q2 2026, Lennar reported revenue of $7.94 billion, equating to a year-over-year (YOY) decline of 5.2%. (Note that Lennar’s fiscal reporting period is slightly ahead of the standard reporting period used by many firms.) The figure significantly missed Wall Street estimates, which called for sales of $8.08 billion.

Still, the 5.2% decline marks a substantial improvement over the prior quarter, when sales tanked 13.3% YOY. That quarter was Lennar’s weakest sales growth since the aftermath of the Great Financial Crisis. This helps highlight the severity of Lennar's stunted growth over recent quarters. In this context, it is good to see that growth is moving closer to 0%, despite the sales miss.

Another silver lining is the fact that Lennar beat estimates on earnings per share (EPS). The figure came in at $1.31, dropping nearly 28% YOY, but was better than the $1.24 anticipated. On the other hand, Lennar reduced its outlook for full-year home deliveries. The company now expects to deliver 82,500 homes at the midpoint, down 2.9% from prior expectations of 85,000 deliveries. Illustrating the difficult economic environment Lennar is operating in, the company attributed this decrease to “current pressure on interest rates and geopolitical uncertainty.”

Lennar Makes Solid Progress on Gross Margin and Incentives

Under the surface, one solid positive was the improvement in Lennar’s gross margin. Like sales growth, gross margin improved from a multi-year trough seen last quarter, rising sequentially from 15.2% to 15.6%. This came partially due to the firm offering fewer incentives to homebuyers. Its sales incentives rate came down to 12.9%, compared to 14.1% last quarter. This was likely a key reason why revenue was worse than expected, but earnings were better than expected. Fewer incentives translate to fewer sales but increase profitability.

Critically, Lennar noted, “After three years of incentive levels that have been generally increasing, we're starting to see the first real and potentially sustainable decline.” This indicates that underlying demand is improving to a point where Lennar may be able to reverse the trend in its incentives and still entice buyers.

Nonetheless, the company clearly remains cautious, calling this reversal “potentially sustainable” and lowering its delivery outlook. Still, Lennar is forecasting another improvement in gross margin next quarter, guiding for 16%. It also notes, “we expect sequential margin improvement quarter-to-quarter as the year progresses," indicating further increases.

At the midpoint, the firm is guiding for EPS of $1.30 next quarter, holding the figure essentially flat versus its latest report.

Lennar: Rate Headwinds Cast a Cloud Over Sustained Recovery Hopes

Shares fell 4.9% the day after Lennar’s report, indicating that despite some underlying improvements, management’s cautious stance did not inspire investors. Notably, 30-year fixed mortgage rates now sit near 6.5%, their highest level since September 2025. This is likely one of the key factors Lennar was referring to when lowering its delivery outlook. During the company’s prior report, rates were significantly lower, near 6.1%. This subsequent increase puts further pressure on affordability in an already depressed market.

Adding insult to injury, Evercore, Royal Bank of Canada, and Bank of America all issued Underperform ratings on Lennar after its report. The highest updated target among them is $87, which projects downside in shares and is considerably below the MarketBeat consensus price target of about $95.

Taking all this data into account, it's difficult to be overly optimistic about Lennar’s outlook at this point. Gross margin and incentives will be important to watch going forward, with increases in the former and decreases in the latter being positive signals. Management taking a more confident stance on the sustainability of incentive decreases would also help change the narrative around Lennar stock.