Lennar (LEN) 3Q25: Lower prices and lower costs needed for affordability

Shares of Lennar Corporation (NYSE: LEN) were down 4% on Monday. The stock has gained 10% over the past three months. The homebuilder faced a difficult housing market in the third quarter of 2025 which impacted its performance during the period. However, the company saw a slight improvement in market conditions towards the end of the third quarter and into the fourth quarter of 2025.

Lower sales and profits

In the third quarter of 2025, Lennar’s revenues decreased 6% year-over-year to $8.8 billion. Earnings, on an adjusted basis, fell 49% to $2.00 versus last year.

Market conditions

As mentioned on its quarterly call, Lennar continued to see softness in the housing market during the third quarter as high mortgage rates and economic uncertainty hit consumer confidence and hindered affordability.

Consumers remained reluctant to move forward with their home purchases. The company found it difficult to maintain sales volume and had to offer additional incentives to drive sales and avoid the build-up of excess inventory. It also adjusted its construction costs to boost sales in this difficult environment.

Although new orders increased 12% YoY to 23,004 homes in Q3, deliveries remained flat at 21,584 homes compared to last year. Average sales price decreased 9% to $383,000. Gross margin dropped to 17.5% from 22.5% in the year-ago period.

LEN began to see a drop in interest rates during the latter half of Q3 and this trend began to gain pace towards the end of the quarter and into the fourth quarter of 2025. Even though this has not yet led to a significant pickup in sales, customers are showing greater interest in moving forward with their home purchases. Sales are expected to gain traction if interest rates continue to drop.

There is high demand for housing but supply remains constrained due to years of underproduction. The housing market softness has led to a slowdown in new construction thereby worsening the supply shortage. Low supply leads to high prices which in turn impact affordability. On its call, Lennar stated that only lower prices enabled by lower cost structures will achieve affordability.

Lowered outlook

Lennar lowered its delivery expectations for the fourth quarter of 2025 to reduce pressure on sales and deliveries. The company now expects deliveries to range between 22,000-23,000 and new orders to be 20,000-21,000. Average sales price is estimated to range between $380,000-390,000 while gross margin is expected to be 17.5%.