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- Inside Lennar’s playbook: Bigger incentives and market share over margin
Inside Lennar’s playbook: Bigger incentives and market share over margin
In Q2 2025, Lennar spent an average of 13.3% of the final sales price on sales incentives—its highest incentive rate since 2009.
Lance Lambert
June 18, 2025
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Inside Lennar’s playbook
There is a consensus among major publicly traded homebuilders that the spring 2025 housing market—especially in many parts of the Sun Belt, where inventory has climbed above pre-pandemic 2019 levels—was softer than they expected.
While some builders have started focusing more on maintaining margins—and some have slowed their housing starts—Lennar has continued to push forward.
Instead of defending short-term profitability, Lennar—America’s second-largest homebuilder—is using this period of housing market softness as an opportunity to capture market share and maintain sales pace through bigger affordability adjustments.
The ResiClub team reviewed Lennar’s Monday earnings report and listened in on its Tuesday earnings call. Here are our top 9 takeaways:
1. Lennar: “All of the markets we operate in experienced some level of softening”
According to Lennar, it has observed at least some “softening" across all its markets this spring. Even its "strongest" markets have lost some momentum. This aligns with ResiClub's reporting.
“All of the markets we operate in experienced some level of softening [this quarter]. Even in our strongest performing markets, buyers needed the assistance of incentives. Incentives will vary across the different markets, but primarily in the form of assistance with mortgage rate buy downs. The markets that experienced more challenging conditions during the quarter were the Pacific Northwest markets of Seattle and Portland, the Northern California markets of the Bay Area and Sacramento, the Southwestern markets of Phoenix, Las Vegas and Colorado, and some Eastern markets such as Raleigh, Atlanta and Jacksonville.”
2. Lennar is deploying bigger sales incentives
Lennar's average sales price, net of incentives, came in at $389,000 in Q2 2025—that’s down -8.7% from $426,000 in Q2 2024.
And oh boy is Lennar spending a lot on incentives…
In Q2 2025, Lennar spent an average of 13.3% of the final sales price on sales incentives, such as mortgage rate buydowns. At that incentive rate, a home with a $450,000 sticker price would come with nearly $60,000 in incentives.
According to John Burns Research and Consulting [see their historical chart here], that’s the highest incentive level Lennar has offered since 2009—and it’s significantly higher than Lennar’s cycle low in Q2 2022, when it spent 1.5% of the final sales price on sales incentives.
Earlier this year, Lennar co-CEO Stuart Miller noted that: "These are outsized [incentives] for the moment and normalized incentives should be around 5% to 6%.”
Pretty much: Where and when needed—especially in pockets of Florida, Arizona, Colorado, and Texas where active inventory has bounced back and buyers have gained leverage—Lennar is cutting net effective prices through larger incentives to find the market and keep sales rolling.
4. Average price net of incentives is down across Lennar’s divisions—even more so in Florida
The biggest net price cuts occurred in Lennar’s East division—which, while it includes Florida, New Jersey, and Pennsylvania, is dominated by operations in the Sunshine State—the epicenter of housing market weakness over the past year.
4. Additional margin compression
During the Pandemic Housing Boom, many publicly traded homebuilders achieved record profit margins as home prices soared and buyer demand ran red hot. Once the national housing demand boom fizzled out in the summer of 2022, many large homebuilders made affordability adjustments where and when needed to maintain their sales pace. Despite some profit margin compression, almost every major homebuilder entered 2024 with gross margins still above pre-pandemic 2019 levels.
However, in recent quarters, margin compression has returned—especially for Lennar.
During their December 2024 earnings call, Lennar CFO Diane Bessette stated that they anticipate further margin compression, with gross margins expected to range between 19.0% and 19.25% for Q1 2025.
Lennar’s Q1 2025 gross margin ended up being 18.7%—and its Q2 2025 gross margin on home sales came in on Monday at 17.8%.
On their June 17 earnings call, Lennar co-CEO Stuart Miller said he expects their gross margin to be 18.0% in Q3 2025.
5. Lennar: Sales pace > margin
As highlighted above, amid the softening market, Lennar has chosen to maintain sales pace over margin. Among the big builders, it has been the most aggressive on that front. It’s now spending 13.3% of final sales price on incentives—and doing some of the biggest net effective price cuts in the Sun Belt—in order to keep sales up.
“We are not there yet, but we are certain that we are finding a floor with margin and getting close to building it back even in a softer housing market environment. As the current market softness unfolded, we focused on consistent [sales] volume by matching our production pace with our sales pace. Although some have questioned why we have maintained volume rather than protect our margin, we are very clear and steadfast on our strategy. Historically, we protected margin as market conditions stalled, and we generally led the way in protecting short term profitability. But we learned through those times that once we step backwards and lose momentum, it becomes increasingly more and more difficult to restart and recapture volume. The machine slows and does not restart easily. We have concluded that by maintaining volume, we can create new efficiencies and new solutions that are durable for the future and will result in meaningful long term efficiencies in our cost structure.”
6. Sales steady-ish across markets
Lennar’s Q2 2025 division-level performance was relatively steady once you account for its February 10 acquisition of Rausch Coleman Homes, which largely explains the sharp year-over-year jump in the South Central division.
The West division was a bit softer, reflecting broader cooling trends across many Western housing markets over the past six months. In contrast, Lennar saw a bit more growth in its Eastern division, particularly in Florida. Why? It’s likely that Lennar’s earlier and more aggressive discounting in Florida is now paying off—attracting buyers who are still encountering resale sellers resisting the shifted pricing environment in their local neighborhoods.
7. No impact from tariffs—yet
“With respect to the question regarding tariffs, consistent with our commentary last quarter, we have had no impact to date on our costs from tariffs. We work closely with the supply chain to prepare for alternative sourcing if it becomes necessary as well as the expectation that our trade partners will work with us to mitigate and offset cost impacts should they present themselves.”
8. Lennar: ‘There’s little evidence to support expectations of materially lower’ mortgage rates this year
“Initially, many in the housing market held on to the hope that higher interest rates were temporary, expecting inflation to subside and rates to drift back to lower levels. However, this expectation has not materialized. Looking ahead, there’s little evidence to support expectations of materially lower interest rates in the near term. As a result, elevated interest rates have solidified as the new normal. The environment is about recognizing that short supply is keeping prices higher and that only lower prices enabled by lower cost structures will define affordability.”
9. Homebuilder stocks remain in purgatory following Wall Street’s pullback late last year
After a strong run through much of 2023, homebuilder stocks lost momentum in the final months of 2024. Several forces converged to spook Wall Street. Mortgage rates jumped back up in Q4 2024 after a mild summer pullback, reigniting affordability concerns just as active inventory levels rose and signs of weakness spread in key Sun Belt markets across Florida, Texas, and Arizona. To keep sales moving, Wall Street anticipated that builders would lean more heavily on incentives—further pressuring margins.
However, in recent weeks, the pullback in homebuilder stocks has lost momentum—they're essentially in a holding pattern right now.
What does this mean for housing stakeholders?
Homebuyers: If a buyer’s primary goal is greater affordability, Lennar—and other builders offering similar discounts—could be an appealing option. Even buyers not interested in Lennar’s product may still benefit from its sizable incentives and price adjustments, especially in neighborhoods where builder-driven affordability shifts are putting additional upward pressure on nearby resale inventory and downward pressure on nearby resale prices.
Investors: I’ve spoken with some investors who have scored attractive deals directly from Lennar in their buy box.
Homebuilders: If you’re building similar product near Lennar communities—or close to other major builders who are aggressively deploying incentives and price cuts—this environment could pose serious challenges in some higher spec inventory areas. Increased competition on price and incentives may force you to either match these offers, compress your margins, or risk losing market share. Smaller builders need to be prepared to innovate, optimize costs, and differentiate their product to stay competitive in this increasingly affordability-sensitive and weakened markets.