Berkshire Hathaway builds near-10% Lennar stake as homebuilder faces rate pressure

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Berkshire’s Lennar stake grows

Highlights

Berkshire Hathaway increased its Lennar stake to nearly 10% by acquiring almost 2.7 million Class A shares, totaling about $1.8 billion in value.
Lennar shares surged up to 6.6% to $83.24 following the disclosure, but the stock remains over 32% lower year-over-year.
Lennar reported Q3 EPS of $1.23, missing estimates, with 8% lower revenue and projected Q4 performance below expectations amid rising mortgage rates and affordability challenges.

Stake increase disclosed in securities filing

As reported by CNBC, citing a securities filing, Berkshire Hathaway bought almost 2.7 million Lennar Class A shares over the three trading days ended Monday, lifting its holding to 23.7 million shares valued at about $1.8 billion.

The Omaha-based conglomerate also holds 528,000 Lennar Class B shares, which carry 10 times the voting power of the Class A stock. Lennar shares rise as much as 6.6% on Tuesday to $83.24 after the disclosure, even though the stock remains down more than 32% over the past year.

Berkshire has a long history of taking stakes in homebuilders, and the latest purchases expand that exposure at a time when Lennar is facing a tougher operating backdrop.

Higher mortgage rates cloud housing outlook

Rising interest rates are hurting homebuilders by pushing up borrowing costs for buyers and reducing affordability across the U.S. housing market. Freddie Mac says the nationwide average rate on a 30-year fixed mortgage reaches 6.95% last week, up from 6.76% a week earlier and 6.26% a year earlier.

Lennar last week reports weak results for its fiscal third quarter ended August 31. Earnings per share total $1.23, below Wall Street's consensus estimate of $1.29, while revenue falls 8% from the same period a year earlier.

The company also forecasts fourth-quarter results below expectations, citing affordability challenges tied to rising interest rates. That combination of weaker earnings and a softer outlook underscores the pressure facing large U.S. homebuilders even as Berkshire adds to its position.

In our earlier report on KBRA’s June 2024 credit outlook, we noted that higher interest rates and rising diesel and commodity costs were not expected to significantly weaken U.S. growth in the near term. Instead, the bigger risk for investors was persistent inflation and pressure on corporate margins, making pricing power and cost control central to credit analysis.

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