By Shaina Mishkin

Home builders are cutting prices and pumping the breaks on new construction. Investors will look to Lennar's earnings for signs the worst of the hit to builders' margins is over.

Construction fell more than expected in August, census data released Wednesday show. Housing starts slid to roughly 1.31 million on a seasonally adjusted annualized basis, the lowest level since May. Single-family starts dropped 7% from the month prior to an 890,000 annual rate.

But August's data represents a period when mortgage rates were significantly higher. Mortgage News Daily on Wednesday pegged the average 30-year fixed mortgage rate at 6.22%, up 0.09 percentage point from the day prior, but still well below the year's highs. Sinking mortgage rates have resulted in a slight pick-up in home purchase applications and could lead to more demand this fall than in recent years -- if they hold, that is.

Investors waiting for signs of a housing market turnaround will have their eyes on earnings and commentary from Lennar, one of the nation's largest home builders. The company will report its third-quarter results Thursday after the market closes, and will discuss them on a Friday morning conference call.

Lennar shares closed 0.63% lower on Wednesday, according to Dow Jones Market Data, following a rise in 10-year Treasury yields after the Federal Open Market Committee meeting. The stock is up 1.5% year-to-date.

Analysts polled by FactSet expect that the builder earned $2.10 a share on just under $9 billion in revenue. But investors will be closely watching the company's margin and guidance for signs that Lennar is stabilizing its spending to gin up buyer traffic.

To make sales in a tough housing market, builders like Lennar offer buyers discounts and deals. In a September survey of builders, 39% cut prices and 65% offered some sort of incentive, the National Association of Home Builders said this week.

"Housing affordability is hurting buyer traffic for builders, and as a result builders have slowed single-family home construction," Buddy Hughes, the National Association of Home Builders' chairman, said in a statement.

Builders offering incentives use their margin to do so. Lennar's gross margin on home sales has narrowed from as much as nearly 30% -- a result of the pandemic's hot housing market -- to a recent 17.8%. Analysts expect the builder's margin will hold steady in its third quarter, according to FactSet.

Perhaps as important for investors will be Lennar's guidance, which will better reflect recent lower mortgage rates and the company's expectations for buyer demand moving forward. While the Federal Reserve reduced its target range for short-term rates, longer-term Treasuries -- and mortgage rates by extent -- had long anticipated the cut. Mortgage rates measured by Freddie Mac fell nearly 0.4 percentage point since the final week in July, to a recent 6.35%.

That drop, and an accompanying pickup in mortgage demand, spurred hopes for home sales. "Our latest survey shows builders reported an increase for future market expectations as mortgage rates have posted a modest decline in recent weeks," Hughes added.

Investors will be listening to Lennar's conference call for updates on management's view towards incentives and margins, along with the macroeconomic environment for selling homes.

The housing market has been crawling in recent years as a result of higher costs. But more construction is still needed, Fed chairman Jerome Powell said on Wednesday.

"A lot of places in the country just don't have enough -- enough housing for people," Powell said during a press conference.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

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September 18, 2025 04:00 ET (08:00 GMT)

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