Lennar Homes posted higher revenue and income for the fourth quarter of 2018, but new home sales and orders for Lennar missed analyst estimates. Accounting for Lennar’s absorption of CalAtlantic the company’s 14,154 home sales still fell short of analyst estimates for 14,485. The bigger concern for Lennar is likely the 5 percent miss on orders which came in at 10,611 instead of the analyst estimate of 11,774.

Lennar’s gross margin on home sales for the quarter fell from 22.4% to 21.4% Operating margin softened to 13.5% Revenues for the quarter were bolstered by a 9 percent increase in Lennar’s average selling price which posted at $421,000, up from $387,000 a year ago. Sales incentives rose $1500 to $25,000 per home delivered in Q4.

Lennar delivered 1913 homes during the quarter in Texas at an average price of $323,000. New orders for Texas posted at 1449 at an average price of $319,000. The modest 12 percent year-over-year increase in Texas orders was less than the 27 percent rise in deliveries. Both of those numbers could look worse once we get a realistic year-over-year comparison with Lennar and CalAtlatic operations fully consolidated.

Lennar’s tax benefit from the corporate giveway program known as the Tax Cut & Jobs Act brought Lennar’s effective tax rate in Q4 2018 down to 23 percent, compared to a 34.7 percent tax rate in 2017. During the quarter Lennar repurchased six million shares of common stock at roughly $41.63 per share for a total expense of roughly $250 million.

Lennar’s chairman, Stuart Miller, suggested decline in demand for new homes was temporary…

“We continue to believe that the housing market is adjusting to a temporary disconnect between sales prices and buyer expectations.”

He might want to check with FOMC officials on that one. As long as the Fed continues to shrink that massive balance sheet, demand for expensive assets is likely going to continue to suffer. This is something KB Home actually confirmed with their Q4 earnings release  today, reporting the company stands ready to add more smaller, less expensive homes to its product mix in 2019.

“We have taken proactive steps to reposition many of our existing and future communities to make our product more affordable. Our business model enables us to efficiently move with demand, leveraging our existing plan series to add smaller square footage options to our communities, and adjusting the specification levels within our homes.” KB CEO Jeffrey Mezger

KB reported flat sales for the fourth quarter (not including December) with average new home selling prices that were 5 percent lower than a year ago. KB’s net orders for the latest quarter fell 12 percent even with lower prices, and Q4 net order value for KB declined 21 percent. Not exactly inspiring demand considering KB’s average community count was slightly higher for the quarter.

It is worth noting that both Lennar and KB Home’s fiscal fourth quarters ended in November. We won’t see the full effect of the December swoon in the markets until they release first quarter 2019 results.