GRBK
Green Brick Partners, Inc
stock NYSE

I think homebuilding in general is a tough market after the heyday of 2020-2021, particularly for low end or “entry level” homebuilders, and it seems like Lennar is one of the worse quality home holders to invest in.

Lennar has been explicit that they have shifted towards “entry level” I.e. lower priced homes. They have cut average selling price more aggressively than any of the other major builders. Average selling price is down over 16% from 2023 to Q1 2026.

Entry level is a very competitive market. With higher rates, they have had to use a lot of incentives. Margins have been crushed at Lennar more than other homebuilders. Others with low price focus, like KB homes or DHI, have also struggled on the margin side but have had a recent upward moves for some reason I don’t understand.

Lennar pivoted to the land-light strategy at the exact WRONG time. There is now a shortage of land lots to develop, which is a bottle neck, so you have to pay top dollar for lots now.

While NVR pioneered this use of option contracts and pre-selling to improve balance sheet usage (and it was a monster stock pre-GFC), the strategy was novel then. Now all the builders have started to do this, which just means (in my opinion) more of the economics of home building shifts to the “land banks”, I.e. companies that sit on land or develop lots, as well as the banks that set up these option contracts.

Millrose (MRP) was spun off from Lennar with all their land and now sports a 10% dividend. Other public lot developers are FOR Forestar and FPH five point.

When one homebuilder reduces their use of land on the balance sheet, land costs don’t go up that much, and that single builder can earn a higher return on equity. When EVERYONE in the business starts relying on option contracts The balance sheet reduces in size, but the margin also contracts, so the ROE of the industry stays the same.

Greenbrick (GRBK) represents the polar opposite land strategy, where they keep a lot of land inventory, and it has maintained margins very well. The company chairman is a well-known value investor, David Einhorn, who advises the CEO on the buyback strategy. The stock has run into some issues after a strong run, because Einhorn’s hedge fund is restricted from holding too much of the stock, so if it crosses a certain threshold he becomes a forced seller. It has a focus on Texas which was a plus in recent years. Nowadays I’m not so sure since the house price is falling so much in Texas.

Generally I like GRBK the best out of the homebuilders for these reasons, but I haven’t been a shareholder in some time.

Another homebuilder to consider is TOL toll brothers, an old Peter lynch favorite. Toll caters to the high end, with average selling price of over $1 million. 25% of their homes are sold with an all cash purchase, no mortgage, because their customers are rich AF and don’t give a damn.

Given the frequent recurrent talk of the “K shaped economy” it seems like the high end consumer is doing pretty well. And out of the home builders, it seems like TOL, the high end builder, is doing the best with over a 30% trailing 1 year return and a 21% compounded return since 2021.

I think homebuilding in general is a tough market after the heyday of 2020-2021, particularly for low end or “entry level” homebuilders, and it seems like Lennar is one of the worse quality home holders to invest in.

Lennar has been explicit that they have shifted towards “entry level” I.e. lower priced homes. They have cut average selling price more aggressively than any of the other major builders. Average selling price is down over 16% from 2023 to Q1 2026.

Entry level is a very competitive market. With higher rates, they have had to use a lot of incentives. Margins have been crushed at Lennar more than other homebuilders. Others with low price focus, like KB homes or DHI, have also struggled on the margin side but have had a recent upward moves for some reason I don’t understand.

Lennar pivoted to the land-light strategy at the exact WRONG time. There is now a shortage of land lots to develop, which is a bottle neck, so you have to pay top dollar for lots now.

While NVR pioneered this use of option contracts and pre-selling to improve balance sheet usage (and it was a monster stock pre-GFC), the strategy was novel then. Now all the builders have started to do this, which just means (in my opinion) more of the economics of home building shifts to the “land banks”, I.e. companies that sit on land or develop lots, as well as the banks that set up these option contracts.

Millrose (MRP) was spun off from Lennar with all their land and now sports a 10% dividend. Other public lot developers are FOR Forestar and FPH five point.

When one homebuilder reduces their use of land on the balance sheet, land costs don’t go up that much, and that single builder can earn a higher return on equity. When EVERYONE in the business starts relying on option contracts The balance sheet reduces in size, but the margin also contracts, so the ROE of the industry stays the same.

Greenbrick (GRBK) represents the polar opposite land strategy, where they keep a lot of land inventory, and it has maintained margins very well. The company chairman is a well-known value investor, David Einhorn, who advises the CEO on the buyback strategy. The stock has run into some issues after a strong run, because Einhorn’s hedge fund is restricted from holding too much of the stock, so if it crosses a certain threshold he becomes a forced seller. It has a focus on Texas which was a plus in recent years. Nowadays I’m not so sure since the house price is falling so much in Texas.

Generally I like GRBK the best out of the homebuilders for these reasons, but I haven’t been a shareholder in some time.

Another homebuilder to consider is TOL toll brothers, an old Peter lynch favorite. Toll caters to the high end, with average selling price of over $1 million. 25% of their homes are sold with an all cash purchase, no mortgage, because their customers are rich AF and don’t give a damn.

Given the frequent recurrent talk of the “K shaped economy” it seems like the high end consumer is doing pretty well. And out of the home builders, it seems like TOL, the high end builder, is doing the best with over a 30% trailing 1 year return and a 21% compounded return since 2021.