Lennar & KB Home Face Tougher Housing Market, Goldman Sachs Cuts Forecast Amid Slowing Demand

Goldman Sachs analyst Susan Maklari reiterated a Neutral rating on the shares of Lennar Corp LEN and lowered the price forecast to $141.00 from $150.00.

The analyst reiterated a Neutral rating on the shares of KB Home KBH and reduced the price forecast to $72.00 from $81.00.

The analyst lowered the first-quarter estimates for LEN and KBH due to a tougher operating environment, with weaker demand leading to higher incentives and reduced profitability.

The 30-year fixed mortgage rate has increased by 44 basis points since mid-December, now holding in the high-6% range, compounded by poor consumer sentiment and macroeconomic uncertainties.

Additionally, rising inventory in some regions and harsh winter weather are slowing activity.

Despite a 41 basis points decline in mortgage rates since mid-January, the analyst remains cautious on demand due to economic and housing conditions.

Channel checks and builder feedback confirm uncertainty in markets like Florida and Texas, though areas like Vegas show strength, with builders meeting sales targets and raising prices.

Improving affordability and weather may boost spring activity, but the analyst expects a cautious outlook from both companies, focusing on factors within their control.

In addition to revenue challenges, margin pressures are increasing due to rising costs, particularly a 10% year-to-date increase in framing lumber prices and potential tariff risks.

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Despite this, the analyst expects modest improvement in results through the year, driven by seasonal volume increases and a focus on spending and cash generation.

For Lennar, the analyst now anticipates organic closings at the lower end of the 17,000-17,500 range, with the company leveraging dynamic pricing.

The recent acquisition of Rausch Coleman Homes will add around 4,000 closings in 2025, bringing total first-quarter estimates to 17,389. Despite these adjustments, the analyst sees gradual improvement, driven by seasonality and a potential reduction in rates.

The analyst lowered F2025 and F2026 adjusted EPS estimates to $11.10 and $13.75, from $11.25 and $14.70, respectively.

For KB Home, the analyst has revised first-quarter order estimate down by 8% year-over-year, compared to a previous estimate of +1%, leading to a 4% decrease in closings, down from the earlier -1% projection.

Looking ahead, the analyst sees market conditions to remain tough, projecting a 1% increase in orders for the year and homebuilding sales of $7.0 billion, down from $7.3 billion, which is at the low end of the guidance range.

Key areas of focus for F1Q earnings include demand trends, cost management, buyer preferences, community count updates, and capital allocation priorities.

The analyst lowered F2025 adjusted EPS estimate to $8.35 from $8.80, while F2026 and F2027 forecasts are lowered to $9.15 and $10.20 from $9.90 and $11.15, respectively.

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