A Homebuilder Just Reported A Return Stat That'll Have Investors Around The World Drooling
One, investment returns are very low. Historically low interest rates have made bond investments unattractive, and the already huge rally in the stock market has everyone expecting future returns to be unusually low.
Two, the American homebuyer is more likely to buy or rent an apartment than buy a single-family home. There are numerous reason for this including tight lending standards, high household debt levels, and generally unwillingness to commit to such a huge expenditure. This has led to a boom in multi-family housing construction.
These two themes set that stage for what we just read in homebuilder Lennar's earnings announcement today. Here's Lennar CEO Stuart Miller:
"Complementing our core homebuilding business, Lennar Multifamily recorded its first two sales of apartment properties in the third quarter. Both sales produced greater than our targeted 25% return on invested capital, and demonstrated that our multifamily segment is maturing and beginning to contribute to the bottom line. Our geographically diversified $5 billion pipeline of multifamily product will become a more predictable source of quarterly earnings starting in late 2015 and 2016."
25% is a whopper compared to the single-digit returns offered in the stock and bond markets.
Of course, not anyone can go out and just invest in a massive real estate development like an apartment. Obviously, the logistics aren't as simple as opening an online brokerage account and buying a couple of shares. And surely there's a mountain of paperwork, and the costs are probably high and complex.
Furthermore, who's to say this isn't the peak of another bubble and Miller's "predictable" earnings suddenly turn "unpredictable."
Still. 25%. Wow.
Lennar shares are up 4.5% in pre-market trading.