Lennar Forecast Disappoints in Challenging Market for Builders

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2:13We're going to break that down and get a better sense of what's happening out there in the U.S. housing market to do that. We check with Drew Redding. He covers all the housing stuff for Bloomberg Intelligence. He's safely ensconced down there in Princeton, New Jersey. He forgot that there's a train into New York City from Princeton, but we'll get to that later. Drew, talk to us about Lennar. What did you hear from our folks there? Yeah, it was a pretty tough quarter for Lennar. Orders were actually pretty solid. They were up 12 % from last year. But what management said is that they can see continued pressure in the housing market and that they had increased their use of sales incentives to drive traffic and demand.

2:48Now, for a little bit of context, last quarter, and we'll wait to see how 3Q ultimately shapes out, But last quarter, incentives represented 13 % of the average selling price of a home. By comparison, in a normal market, that's about 5 % to 6%. In some of the most important markets, Florida, Texas, it's as high as 17 % to 18%. So you could see just the extent of how much they're having to incentivize to drive traffic through the doors. And we saw that ultimately play out in the results. Their average order price is down about 12 percent. And their guidance for next year, excuse me, for 4Q was a little soft on the orders and delivery side of the business.

3:27Now, if Lenar comes out and tells us that they intentionally are intentionally pulling back on deliveries because they think they could capture some margin upside, I think that could be well received. But at the same time, their 4Q margin guide is still weaker than expected. So they did say they have some optimism with rates coming down in the Fed cutting rates. But we'll be listening on the call to see if that's actually materializing. So, Drew, do you see this as isolated to Lenar or a broader theme here in the housing market? I mean, of course, we have luxury homebuilder Toll Brothers reporting about a month ago today.

4:03Yeah, so Lenar is a little bit of a different animal within the public space. You have to remember they're primarily focused on driving higher sales volumes. And what they've said consistently over the last couple of years is that they're willing to sacrifice gross margin to drive volumes. So when you see weakness in demand for Lenore, you're going to see it show up primarily in their gross margin. That being said, the issues that they're facing are really across the spectrum. I mean, no builder can get away from the fact that affordability continues to hover near the lowest levels of all time.

4:37I think that the recent pullback in rates will help a little bit. But in terms of it being, you know, the silver bullet for the broader housing market and getting us back to normalized levels of demand, you know, I think there's other factors at play that prevent that from happening immediately. So, Drew, rates remain incredibly high, especially for the average homebuyer. So what do you make of the fact that the S15 home, the index that tracks homebuilders, is up 13 % year to date? Yeah, great question. And if you look at how the stocks have behaved really since mid-June, they're up over 30%. And that was really the stocks moving in anticipation of rates coming down and the Fed cutting rates.

5:15You could also see that in how mortgage rates have responded. They moved up ahead of the rate cut. And if you look at where rates are today, actually, they're up 25 basis points since the Fed cut. It's kind of reminiscent of the last time they cut when rates rallied pretty low ahead of the rate cut. And then after that actually came in, you saw rates move back higher. So I certainly think that builder stocks are always going to react to rates. The group right now is trading at about 1.9 times book. There's an old rule of thumb in the industry that you buy the builders at one times, you sell them at two times.

5:51Certainly, there have been cases where they've traded outside those ranges over the last 20 years or so. But what has been pretty consistent is that once they get to that kind of 2.2, two and a quarter times book, there has been resistance from a valuation perspective. So it's something to keep an eye on. Drew, talk to us about the existing home market today. How's that? Are people that are sitting on their homes, are they any incentive to get out? Yeah, great question. I mean, the existing home market is still pretty much frozen. Volumes are 20 to 25 percent below what would be considered normal.

6:25And you're right, the incentive just isn't there. You have, you know, 50 to 75 percent of mortgages are below four and a half percent. So even as the headline rate comes down to six and a quarter, we're still talking about a pretty big delta. When you layer on top of that, that, you know, it's not just the rate they're trading in, but home prices are up 50 percent from 2019. So when you look at the total cost of ownership, factoring in property taxes and higher insurance costs, that monthly payment is significantly higher. I mean, so I mean, I'm going to speak for the Norma Lindas of the world, the Sebastians of the world.

7:02How are young people getting into the ownership these days? You get about 30 seconds through to fix this problem for us. Yeah, great question. And I'm afraid it can't be fixed that quick. But what we're actually seeing is a significant shift towards the rental market. If you look at household formations over the last quarter, household growth was exclusively driven by renter occupied units. So it has become increasingly challenging, and we see that the rental market has been the beneficiary. I don't know, man. I mean, Sebastian, Nora, I feel for you guys. I don't know how the young folks today are going to do it.

7:38Drew Redding, Home Building Analyst for Bloomberg Intelligence. Thanks so much for joining us. He's down there in Princeton, New Jersey. Again, Lenar feeling the effects of kind of a little bit of a tougher market at their rates. Come down a little bit, but they're still higher than a lot of people want them to be. and still these new home builders have to supply a lot of incentives just to get people into the homes. So we'll stay on top of that. Stay with us. More from Bloomberg Intelligence coming up after this. Over$100 trillion estimated to be transferred to generations in the next 25 years.

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9:29Paid for by Public Investing. Brokered services by Open to the Public Investing Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. Ask yourself, what are your best people spending their time on right now? Expense reports, receipt chasing, month-end close that takes weeks. You become what you spend on and that's not what you're building toward. Brex is the intelligent finance platform that eliminates that work before it starts. AI agents that handle the manual stuff automatically, so your team can spend their time on what actually compounds.

10:08It's time to get Brex AF. Learn more at brex.com slash AF. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. So obviously some big news out there in Hollywood. ABC pulling Jimmy Kimmel's show, I guess, indefinitely. I'm not sure what that means over some content that some folks found objectionable. And this featured the chairman of the FCC, the Federal Communications Commission, which is responsible for licensing television stations across the country, Mr.

10:50Brendan Carr, playing a pretty big role getting the support also of President Trump. Let's see how this plays out from a regulatory perspective. Matthew Shittenhelm. He is a media litigation analyst for Bloomberg Intelligence. Matt, talk to us about the role that the FCC and the chairman, Mr. Carr, are playing in what appears to be, I guess, a free speech issue with the ABC television network. Yeah, that's right, Paul. When you saw Brendan Carr go on that podcast the other day, he was stressing the FCC's role as the regulator of the broadcast TV stations that are all across the country that have to get a license to carry their content.

11:32And the law says that they have to act in the public interest. And Brendan Carr has been taking a very aggressive approach to the meaning of what is in the public interest. We have a long history of under that provision of the law. It goes back to Nixon, the Reagan era, where historically the FCC used to look at whether broadcasters were being fair or not and whether they were being balanced. They've largely gotten out of that business. Brendan Carr seems to be reinvigorating the push to get into broadcast content decisions. And so this was a threat to Disney, that this is potentially a distortion of the news by broadcasting these comments on Jimmy Kimmel's show.

12:17That sort of triggered action, first from smaller companies, Nextstar and Sinclair, and then Disney followed along. So I know you mentioned that the FCC likely couldn't have found a news distortion violation by Disney or any of the other broadcasters based specifically on Kimmel's comments. Do you mind expanding a bit there? Yeah, so I'm really skeptical that that would have gone anywhere. The FCC's news distortion rule is extremely narrow. First of all, it applies to news. There's a direct FCC decision that says, look, we're not going to apply this to an entertainment program. And then even with respect to news, it's very limited.

13:00The FCC needs to see evidence that management of the station knew what it was saying was false and ran the story anyway. Otherwise, the FCC has said, look, we need to get out of the way of editorial decisions, leave breathing room for news to do their job. That's historically been the approach. And Brendan Carr's working against that precedent. What this was really about, though, is these companies need to stay in the good graces of the FCC. It's not so much the threat that the FCC is going to win on a case like this. These companies need the FCC to finish a couple rulemakings that are deregulating the whole sector.

13:38And so if the FCC asks them to do something, they have a strong incentive to do it because they want other actions from this FCC that will help their business. Does that partially explain to some degree the actions from Nexstar, which is one of the largest owners of TV stations in the country? And they have a pending acquisition of Tegna, which is a TV broadcasting company that's in front of the FCC right now. That's exactly right. And so that's a six billion dollar deal. And it depends on the FCC easing a rule. Right now, there's an FCC rule on the book that says you can only reach about 39 percent of U.S.

14:15households. This deal would reach 70 percent or 80 percent of U.S. households. They need the FCC not only to approve the deal, but to scrap that rule first. If they don't do that, the deal is going nowhere. And so when Brendan Carr goes on this podcast and says, local stations, would you please do this? You saw an almost immediate response from Nextstar and Sinclair, followed by a thank you from Brendan Carr. I mean, what's the likelihood of this deal being approved? I mean, of course, that would be massive to have that amount of sway ownership there. Yeah, all signals are that this deregulation will move ahead at the FCC.

14:58This has been a priority for Republicans in FCC circles for a long time, and I think it will advance. There is a very difficult legal question looming as to whether the FCC can change that 39 percent cap. There's a strong argument on the other side that Congress must do it. And I think we're going to have a tough court fight on exactly that issue. I think the FCC probably can win that fight, but it might depend on what court ends up hearing it, what set of three judges ends up hearing it first. All right, Matt, thanks so much for joining us. Appreciate it. As always, Matt Chettonholm, he's media litigation analyst.

15:32He's kind of really the litigation and the regulatory guy that we chat with when it comes to all things related to the media and the regulation of the media. And clearly, this is a big issue for the ABC Television Network, for Walt Disney in general, and of course, other parties involved there, whether it be Nextar, Sinclair, and some others. So we'll keep an eye on that, but it's certainly a big piece of news in the TV business. Stay with us. More from Bloomberg Intelligence coming up after this. Support for this show comes from Public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions.

16:11Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve of the workflow and your agent handles the risk. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API.

16:51Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., Member FINRA, and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. Ask yourself, what are your best people spending their time on right now? Expense reports, receipt chasing, month-end close that takes weeks? You become what you spend on, and that's not what you're building toward. Brex is the intelligent finance platform that eliminates that work before it starts.

17:31AI agents that handle the manual stuff automatically, so your team can spend their time on what actually compounds. It's time to get Brex AF. Learn more at brex.com slash AF. This is Tony Ayo from The Real Report with Tony Ayo and Uncle Murda. You ever notice how everything keeps going up? Rent's going up? Streaming services are going up? Even your favorite burrito spot suddenly thinks salsa should cost extra. But with Boost Mobile, you and your phone bill don't have to play the will it go up soon game because Boost Mobile has an unlimited talk, text and data plan at a price that'll never go up.

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18:37Customers will pay$25 a month as long as they remain active on the Boost Unlimited plan. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. My personal take on energy and where we get energy going forward is I think we're just going to need pretty much everything. If fossil fuels, gas, oil and gas, the renewable stuff, the water, the wind, whatever, I think we're going to need it all. And that includes nuclear as well.

19:17And I've been really fascinated by some of the new technologies in the nuclear. I don't think we're talking about building a new three-mile island or anything. But James Walker, he's the CEO and board member of a company called Nano Nuclear Energy. It is a publicly traded company on NASDAQ. NNE is the ticker. He's out there in Salt Lake City, Utah, which I've been to a million times. But quite frankly, I just go to the airport and then I hop in a car and drive up to one of the ski resorts on the canyons. That's my... As you should. That's how I deal with Salt Lake. James, thanks so much for joining us here.

19:45Talk to us about your company and kind of this whole technology around micro reactors. Talk to us what that technology is and is it a thing? Sure, it's definitely a thing. It should be the next big thing because there's a big sort of energy bottleneck coming in the country. There's huge energy demands, re-industrialization, electrification, but also significant demands from the tech industry. They need gigawatts and gigawatts of power. And they need that a lot of the time to be off grid, to be co-located with them and need to be output power consistently over decades. And like that's put them in bed with nuclear.

20:20And that's kind of why there's this hot space at the moment in the nuclear industry. And you're seeing so much investment go into it. The U.S. is trying to build back nuclear infrastructure as fast as it can just to enable this sort of massive scale up of nuclear power. So our company is obviously involved in that. We make advanced reactor systems. They're lots smaller than the conventional ones. The idea here is that you can you can use these things and sort of roll them out like products and deploy them and assemble them and output power anywhere. Meta, Amazon, Google, Microsoft, all these big names seem to be going nuclear.

20:54And in your own words, it seems as though we're in the middle of a nuclear renaissance. What do you make of this in particular in regards to the tech sector? Well, I would say this is a pretty unprecedented time. Like previously with nuclear, everyone always thought a renaissance was coming with it because theoretically it should be the cheapest and easiest form of power in the world. But it never really came. But what's happened now is that, say, for instance, if you're a big data center, if you are the Googles or the Microsofts of the world, you need a lot of power. But even if you were to have all the gas and coal that you needed or anything like that, you would still need to massively upgrade the national grid to a point where it could begin outputting the power that you require.

21:40And the infrastructure costs that would be involved in upgrading the grid might be$5 trillion, something like that. So they're not in the business of doing that, but they need the power. So with nuclear, you don't need to be on the grid. You could be off grid and you could just build a reactor wherever you want and use a microgrid and then outlay the power through that system to a data center or an AI center, anything like that. So the tech industry has settled on this as the solution, the long term solution. And in the interim, you know, they'll do anything. It'll be geothermal. They'll use gas.

22:13They'll use wind and solar as much as they can. But in their long-term strategy, they realize that for what they actually need, the large scale of it, nuclear is going to have to be a major component, if not the largest component of that solution. All right. Your company, Nano Nuclear Energy, has got a market cap of$1.8 billion. The stock is up 300 % over the trailing 12 months. It's up 73 % year to date. It's up 13 % today. I think you sold some technology to somebody. I go to your P &L. You don't have a nickel of revenue. What is going on with your stock? Explain to me what the investment theme is out there in the marketplace for your company.

22:46It's the same with every advanced reactor company at the moment. They're all in the same boat. We're all building things. But the reason why Nano has particular interest is that we have construction projects already scheduled. We have a big project. They've been building the U.S.'s first microreactor at the University of Illinois. And we actually should be building Canada's first microreactor at the same time up at Chalk River on Canadian nuclear laboratory land. So there's huge interest in what we're doing. And so we're getting an enormous amount of support. And what the institutional investment is doing now is that they're hedging their bets.

23:21They know that nuclear is going to take off. And now they're beginning to bet on companies. And there's already a sort of a convergence of, you know, in a hot sector, you'll have 20 companies come out of the woodwork, but already they're sort of being squeezed down to a handful of leading companies. And we're one of them. And that's why you're seeing this huge market interest in us, because everyone's positioning themselves for essentially the future. Well, we definitely touched on your stock performance here. Tell me what sets you apart from your competitors, though. So, I mean, we've kept things very simple.

23:57We know that the technology we're utilizing is going to work. High temperature gas reactors have been used for decades. All we're doing is scaling them down. But on top of that, we're actually utilizing a special form of fuel which eliminates the necessity to have all these redundant safety systems. You can co-locate with, if it was a data center and AI, you could be pressed right up against them. You could even be sighted in the middle of a population center. There's no risk to anybody around you because the reactor has no chance of having a meltdown in the way a conventional civil nuclear power plant can.