Woodlands based LGI Homes posted third quarter results that didn’t impress the market. Home closings fell 7.4% in the latest quarter. More concerning is that LGI’s sales decline occurred as the community count increased from 77 to 81. As I have detailed for much of the year, publicly-traded home builders are struggling to match the shift in consumer demand toward less expensive homes. As their order growth has stalled with higher mortgage rates, builder stock prices have suffered. LGI’s problems are more complex.
I suspect that LGI’s problems go beyond just average prices. LGI already builds cheap homes. The latest Q3 numbers showed an average selling price of $237,582? So why the poor sales numbers for LGI? For another clue, I would look at LGI’s partnership with one of America’s largest landlords, American Homes 4 Rent. LGI is apparently willing to throw prospective home buyers under the bus as long as they can generate additional sales. I spoke to a few homeowners in the community of Beaver Creek in Denton Texas, and these new homeowners had no idea that one of America’s largest landlords was buying homes directly from LGI right under their noses.
As somebody who represents new home buyers, I can tell you that brokers generally frown upon sales activity that can tarnish a neighborhood or the overall feel of the community. Good real estate agents often avoid selling in neighborhoods with heavy investor activity. The reasons are simple. You wouldn’t want to find yourself (or your clients) surrounded with renters if you can buy in a community with higher owner-occupancy levels and more more stable property values.
It’s disturbing that LGI is selling homes directly to a Wall Street landlord. It’s downright unethical if the company is not informing all of its potential home buyers leveraging themselves up to their eyeballs that their new neighbor could be AH4R. Is the company really that desperate for potential customers? I don’t know. Maybe LGI should focus on building better homes. That’s just the opinion of your humble blogger/real estate broker. LGI’s website says it is “dedicated to our customers”. I wonder which customers it is referring to? Is it the owner occupant buyers who are scraping nickels together for a down payment to buy a home, or the big money buyer with deep pockets located in Agoura Hills California?
Houston Chronicle real estate “reporter”, Nancy Sarnoff penned this humorous article on LGI’s latest numbers. The puff piece headline tells it all, ‘LGI Homes posts higher profit amid housing-market headwinds‘. This is the kind of de-facto press release that now passes for news in major papers these days. I suspect that Ms. Sarnoff isn’t aware of LGI’s partnership with a Wall Street mega-landlord. While she was busy quoting the company’s PR/spin, she could have done some actual reporting, but alas it wasn’t meant to be.
LGI’s stock declined more than 12% today, falling $5.83 per share to $39.45. Year-to-date, LGI stock has collapsed more than 47 percent.
To this I would say…Karma is a bitch.