Lennar sold fewer homes last quarter, for less money, at a gross margin of 15.8% against 17.5% a year ago. Berkshire read the same report and put $212 million in anyway.
You read this morning that Buffett’s team acquired 2.74 million Lennar shares at $77.42 apiece. Tonight, let’s take the business itself apart.
Three questions I’ll answer
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What does a homebuilder actually sell when the buyer cannot afford the payment? |
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Why does Lennar own only 2% of the land it builds on — and who holds the rest? |
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What did $77.42 a share buy: the houses, or the machine that moves them? |
I have tracked this company since the last housing cycle, and it does not make money the way it did then. Here is how it works now. ↓
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Why the FDA's Coveted Designation Matters |
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The FDA doesn't grant Breakthrough Device Designation easily. |
It's reserved for technologies with the potential to tackle life-threatening conditions, granting more frequent FDA interaction and prioritized review of future regulatory submissions. |
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Here's what makes the investment opportunity stand out: |
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This is what early-stage access to a pre-clinical medtech looks like. Invest in Eliaz Therapeutics today. |
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The Homebuilder That Stopped Owning Land
Lennar is one of the two largest homebuilders in the United States, delivering 20,840 homes in the quarter ended August 31 at an average price of $372,000. That is the description on the label. What sits underneath it changed in February 2025, when Lennar spun off Millrose Properties, a separate company that took the land with it.
The Machine
Lennar now owns roughly 2% of the homesites it builds on — 11,800 lots against about 476,000 it controls through options. An option is the right to buy a lot later at a price agreed today, for a deposit rather than the full cost, so the land stays off the balance sheet until a foundation is ready to pour. What is left is a manufacturer. Starts, sales, and deliveries came within a couple hundred homes of one another last quarter, and the average house went from ground to keys in 116 days, a record low and down from 126 days a year earlier.
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Construction cycle time
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116 days
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Homesites owned outright
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2%
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Gross margin on home sales
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15.8%
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Loans written by Lennar Mortgage
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83%
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Who Pays for the Rate
Incentives ran about 12.0% of the sales price last quarter, and most of that money does one job: it buys the mortgage rate down. A rate buydown is a payment the builder makes to the lender so the buyer’s loan carries a rate below what the market offers — the builder covers the gap out of the price of the house. With the 10-year yield near 5%, that payment is what closes the sale. Lennar can run it at scale because it owns the lender: Lennar Mortgage wrote 83% of the loans, and financial services produced $129 million of operating earnings, $39 million of it from a one-time legal reversal. Gross margin on the houses — what is left of the sale price once the house is built — fell to 15.8% from 17.5%. That margin is the price of the volume.
NATE’S TAKE
Berkshire paid $77.42 a share for a company earning less on every house than it did a year ago. I read that as a purchase of the machine rather than the market. A 116-day build, 2% of the land owned, four of every five buyers financed in-house, and homebuilding debt at 16.6% of capital let Lennar keep pricing to whatever the buyer can carry, for as long as this takes. Whether demand returns in 2027 or in 2029 changes the earnings. It does not change who is still standing when it does.
— Nate Fowler
After the Bell · Evening Special Edition
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