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While the broader economy benefits from momentum tied to artificial intelligence (AI) data centers, the housing sector has been under pressure. Activity has weakened amid elevated mortgage rates, falling home prices, and lower immigration. Two major homebuilders—Lennar and D.R. Horton—have seen their shares decline sharply from record levels, reflecting these macro headwinds.
Lennar shares are down 49% from their all-time high, while D.R. Horton shares are down 29%, according to the article. The piece also argues that earnings are expected to remain weak in 2026, but that long-term investors may find value in the sector’s cyclical downturn.
The article points to the decline in average selling prices (ASPs) as a key driver of the downturn for Lennar. Before the pandemic, Lennar’s ASP was just above $400,000. It rose to a peak of $478,000 in 2021, but has since fallen below pre-pandemic levels to $376,000.
Lower ASPs, combined with higher input costs, have pressured profitability. Lennar’s gross margin is reported at 17.6% over the last 12 months, compared with close to 30% at its peak. The article links this to mortgage rates that remain above 6%, making home purchases less affordable for many buyers and forcing price reductions to support demand.
The article also cites negative net migration to the United States as an additional headwind. With fewer people moving into the country, demand for certain housing types may weaken, all else being equal.
Despite the slump, the article says Lennar’s leadership position should remain intact over the next decade. It notes that the stock trades at a price-to-earnings (P/E) ratio of 12 on depressed earnings, and argues that once mortgage rates, housing activity, and immigration trends improve, earnings could resume growth.
Like Lennar, D.R. Horton is described as being affected by falling ASPs that weigh on profit margins. The article states that D.R. Horton’s gross margin has fallen from over 30% to 23.3% over the last 12 months, driven by a combination of lower ASPs and rising inflation.
It also highlights a structural difference in business model. D.R. Horton’s land-optioning approach is described as producing structurally higher profit margins than outright land purchases, even though the current environment has still reduced margins.
As with Lennar, the article reiterates that negative net migration can reduce housing demand.
The article argues that both companies are positioned to return value to shareholders despite difficult conditions. It states that both Lennar and D.R. Horton are generating positive free cash flow, though the figures differ due to their business models.
Over the long term, the article says both stocks have consistently produced positive cash flow that supports capital returns and dividend growth.
The article describes a dividend growth framework based on share repurchases. By buying back shares, companies reduce the number of shares outstanding, which can support a higher dividend per share even if total dividend commitments remain nominally similar.
It adds that over the last five years, the outstanding share counts for both Lennar and D.R. Horton have fallen by close to 20%. The article attributes part of the dividend growth performance to this shrinking share base.
The article concludes that if the housing market normalizes in the coming years, both Lennar and D.R. Horton could see a recovery in earnings. It frames the current period as a potential entry point for investors seeking dividend growth over the next decade.
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