We See Margin Compression Ahead for Lennar Amid Declining Home Sales

The last three years (2020-2022) proved to be strong years for the U.S. housing market despite the COVID-19 pandemic, and housing starts should remain elevated in 2022 (we project 1.555 million units) as homebuilders work through extensive backlogs. However, deteriorating affordability has slowed housing demand, and we project starts to decrease 18% in 2023 to 1.275 million units, which is about in line with new home production in 2018-19. However, we expect affordability will improve over the next two years as both mortgage rates and home prices decline. We project starts will rebound to around 1.55 million units by 2026-27 and average roughly 1.45 million-1.5 million units toward the end of the decade.