Homebuilders alarmed as first-time homebuyers stay sidelined

Julie C. Nichols General

HousingWire – Megan Hopkins

Lennar (LEN) and KB Home (KBH) will release earnings Tuesday, providing the market a glimpse at how builders are faring in a market riddled with reluctant first-time homebuyers.

In anticipation of the firm’s earnings, Sterne Agee analyst Jay McCanless maintained neutral ratings for both builders, recognizing that without new first-time homebuyers they will be somewhat strained.

According to McCanless, both KB Home and Lennar’s buyer mixes are skewed with first-time buyers making up 70% and 60% of their business, respectively. Because of this, the analyst says reluctance among first-time buyers is largely responsible for the second-quarter orders at both companies missing their estimates.

McCanless forecasts 30% year-over-year order growth for Lennar in the third quarter of 2013 and 10% year-over-year growth for KB Home, estimates he believes are achievable. However, the analyst added that first-time buyers comprised only 28% of August existing home sales versus 29% last month and versus the historical average of 40% to 45% — a sign entry-level buyer access to mortgage financing may not be improving.

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