Orders and deliveries of new homes remain on an upward trend, up 6% and 2% respectively compared to the same period last year, although average prices per unit are, unsurprisingly, down 9%. The construction division has thus lost a third of its operating profit, with consolidated net income down 40%.

This is a direct effect of rising interest rates. In the US, mortgage rates are now hovering around 7%. Suffice it to say that property values have adjusted accordingly—i.e., downward—and demand has stalled since the peaks reached during the pandemic.

Lennar is managing to cope with relative resilience thanks to support measures whereby the group helps buyers finance their properties by contributing to the down payment. This measure comes at a cost, but it prevents the company from suffering from a paralysis in transactions.

Such a difficult credit environment would have been felt more acutely by developers and builders in the past. Having learnt from experience, they have adopted "land light" strategies, whereby land is now controlled through options with defined time frames rather than being purchased and carried on the balance sheet. This "decapitalizes" their business and prevents them from suffering excessive losses in the event of a sharp rise in interest rates.

True to its management style, Lennar remains aggressive on share buybacks, with 4.7 million shares taken off the market this quarter at an average price of $110. MarketScreener analysts welcome this move, as Lennar is trading at a significant discount to its historical valuation multiples.

The group also remains positioned to return between $2bn and $3bn per year to its shareholders, excluding additional growth prospects. This quality makes the situation attractive when compared to an enterprise value of $25bn, and is reminiscent of Molson Coors, discussed earlier today in our columns.

A rate cut—widely anticipated given the economic slowdown in the United States—would directly benefit Lennar and its peers. No doubt many investors are already considering positioning themselves accordingly.