When Wall Street runs from something, Berkshire Hathaway tends to walk toward it. This year, that’s turning out to be homebuilders. Greg Abel, who took over for Warren Buffett as CEO in January, just raised Berkshire's stake in Lennar by 94% in a single quarter. Berkshire now owns about 11% of America's second-largest homebuilder.

Abel isn't calling a bottom on the housing market. With rates staying higher for longer, home builder’s margins have continued to shrink over the past several years from offering large buyer incentives and Abel has said he doesn't expect a quick recovery for home builders. Instead, he’s investing in a market that he believes will come 5 to 10 years from now. Today we're covering what Berkshire is buying, and how that affects Utah, including why some builders are cutting their incentives.

Lennar is Berkshire's third homebuilding investment this year. In May, it announced it was buying Taylor Morrison, the sixth-largest builder in the country. In July, one of its homebuilding companies bought McGuinn Homes in South Carolina. Once those deals close, Berkshire will be the fourth-largest home builder in America, while increasing its Lennar holdings by 260% since January, ramping up as Lennar stock has been falling further in recent months.

Lennar's stock is down almost 57% from its September 2024 high. Since the end of 2019, it's up 41%. Over the same stretch, the S&P 500 is up 140%.

A big reason is where Lennar builds. Much of its business is entry-level homes in Texas and Florida, which have been the weakest housing markets in the country since the pandemic boom ended in 2022. Several large investment funds sold Lennar shares in the same quarter Berkshire was buying.

To keep homes selling, Lennar has cut prices more than any other large production builder. Its average sales price on a home is down 24% from 2022. About two-thirds of that drop comes from price cuts and incentives like massive mortgage rate buydown programs. The rest comes from building smaller homes in cheaper areas.

All those incentives and price cuts have a real cost to builders. In fact, Lennar's profit per home just fell to it’s lowest Q3 since 2009. Incentives have eased a little, from 14.3% of the sale price a year ago to 12% today, but with rates climbing, Lennar's CEO said selling homes has gotten harder for them since June, not easier, and Lennar is not alone.

Lennar builds in our back yard, with communities in Spanish Fork, Eagle Mountain, Saratoga Springs, West Jordan, Santaquin, Payson, Heber, St. George, and more. Often times Lennar are homes are priced at the bottom of the pack. In fact, there’s a Lennar home in Spanish Fork that went under contract within the past week with a $62K price cut.

But here’s the thing… builders can only offer so much in incentives. And since rates have been going up over the past couple months, I’ve seen 3 large home builders send out notices that they’re having to raise their mortgage rates after using their incentives. Don’t get me wrong, you can still get a great deal right now with a really good rate if you know what you’re doing. But the incentives themselves aren’t quiet as good as what we were seeing a couple months ago. So if you’re able and wanting to buy a home, but you’ve been waiting on the sidelines until either rates improved, or prices declined, that decision could be costing you a lot of money right now.

Builders with finished homes to sell are some of the most motivated sellers in Utah right now. Rate buydowns, closing cost help, and price cuts are all on the table, especially on homes that are already built and sitting empty.

Just remember who the builder's sales team works for. A buydown through the builder's lender can come with strings, like a higher price or less room to negotiate elsewhere. In most cases the builder will offer to cover a buyer agent commission, but won’t give you a discount if you directly to them. So it’s worth having your own agent on your side and costs you nothing. A good buyer agent will compare the builder's offer against resale homes nearby and actually negotiate to get you a better deal than what they first offer.

But remember, waiting for rates to improve or prices to decline could be a very expensive decision. It has turned out to be that way thus far for the past decade, and even within the last 4 years since the pandemic boom ended with no real sign of major affordability changes coming.

If you're selling near new construction, your competition isn't just the house down the street. It's a brand-new home with a massive buyer incentive atattched. Buyers are comparing monthly payments, not just prices.

You can still compete, but offering to buy down the buyer's rate or cover closing costs often lowers their payment more than an equal price cut. Pricing off what's selling now, not last spring, keeps you from sitting on the market, and if your home already sat without selling this year, that's something I help with often.

The long-term picture is worth keeping in mind too. One of the most careful investors in the world is betting housing will be strong 5 to 10 years from now.

Selling near new construction? Reply and I'll show you how your home stacks up against builder inventory nearby.

Here to serve,

P.S. Curious what your home is worth in today's market? Reply with your address and I'll send you a free, no-pressure breakdown.