I learned how to invest by watching Warren Buffett. I read his shareholder letters and sat through hours of Berkshire Hathaway annual meetings.
One lesson stuck above the rest: The best opportunities often show up when the outlook feels uncertain.
So I paid attention when Berkshire’s (BRK.B) name appeared beside Lennar again.
Valued at a market cap of $18 billion, Lennar (LEN) stock is down 58% from all-time highs. However, the ongoing drawdown has meant it pays shareholders a dividend yield of 2.6%.
Shares of the homebuilder have grossly underperformed in the past year due to higher mortgage rates and a housing market slowdown. Yet Berkshire keeps buying the beaten-down stock.
So what does Berkshire see that the market does not?
The answer starts with how tough housing has become, and why that may not be the whole picture.
Berkshire’s Lennar stake climbs to 11.2%
Berkshire raised its Lennar stake to 11.2% at the end of September, CNBC reported. An SEC filing showed it recently bought $53.6 million of Class A shares and $329,000 of super-voting Class B shares over three days.
The position now totals 26.6 million shares worth roughly $2 billion at the time of writing. Here is how fast Berkshire’s stake has grown in Lennar.
End of 2025: 7.2 million shares
End of Q1 of 2026: 10.3 million shares, up 43%
End of Q2 2026: 13.4 million shares, a 5.4% stake worth $1.2 billion
Now: 26.6 million shares, an 11.2% stake worth $2.1 billion
Until Berkshire’s stake crossed 10% in mid-September, its purchases did not have to be reported as they occurred.
That changed once it passed the threshold, and an SEC rule then required disclosure within two business days.
Also Read: Lennar delivers harsh reality check for housing market
Higher mortgage rates squeeze Lennar’s buyers
Berkshire is betting on a long-term recovery in housing despite rising mortgage rates.
Six straight weekly increases pushed the average 30-year fixed mortgage rate to 7.30%, according to the Mortgage Bankers Association, the highest since late 2023.
Lennar CEO Stuart Miller described the slowdown in demand during the last earnings call.
A buyer earning the median family income now stretches past 30% of gross income to carry a home, he said.
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In many markets, almost 50% of visitors cannot immediately qualify for a mortgage.
The U.S. Census Bureau said new home sales ran at an annual rate of 684,000 in August, up from 6.4% in July but 2% year over year.
The agency warns these monthly figures carry wide margins of error, so I would not read too much into the gain.
Supply stood at 8.5 months, which suggests that builders would need 8.5 months to sell every new home on the market at the current pace.
The median new home price was $393,700, down 5.8% from a year ago.
Lennar trades margin for volume
Lennar has made a deliberate choice on cutting prices and offering incentives to keep homes moving, even if that impacts profitability. In Q3:
It delivered 20,840 homes, within its guidance of 20,500 to 21,500.
New orders of 20,879 landed just below the 21,000 to 22,000 range.
Gross margin improved to 15.8%, and earnings came in at $1.19 a share, or $1.23 excluding one-time items.
Miller was blunt about the choice Lennar made, stating:
“We are not waiting for the market to rebuild our margin. We are working through a land basis that was set in another market condition.”
Lennar purchased land when prices were higher and now sells homes at lower prices while offering incentives, which ran 12% on deliveries.
Moving volume turns that costly land into cash.
Miller said land cost per home site is up about 6%, while construction cost per square foot is down 14% since the fourth quarter of 2023.
Lennar owns only about 2% of its homesites. It holds 11,800 and controls 476,000 through third parties. That land-light model may appeal to a patient investor like Berkshire.
For the fourth quarter, Lennar expects 22,000 to 23,000 deliveries, a gross margin of 15.5% to 16%, and earnings of $1.30 to $1.65 a share.
Lennar is wrestling with slowing housing demand.Witthaya Prasongsin / Getty Images
Wall Street analysts stay cautious on Lennar stock
Few analysts share Berkshire’s patience. Morgan Stanley initiated coverage with a “Strong Sell” rating and a $65 price target, which is 15% below current prices.
Out of the 14 analysts covering Lennar stock, seven recommend “Hold,” and seven recommend “Sell.” The average LEN stock price target is $75, which is 2% below current levels.
Consensus estimates compiled by TIKR forecast free cash flow to improve from $632 million in fiscal 2026 (ending in November) to $5 billion in fiscal 2029.
If Lennar stock is priced at 11.6x forward FCF, which is similar to its five-year average, it could triple within the next two years.
Even if FCF compresses to 5x, it could return over 40% after adjusting for dividends.
My take: Berkshire Hathaway is playing the long game
I see Berkshire’s buying as a long-term vote of confidenceel. Miller made a similar point as he emphasized that the land headwind “is finite, it is visible, and every quarter of volume shortens it.”
However, investing in the homebuilder carries certain risks given rising interest rates. Moreover, resale listings are back above historic levels nationally, and higher in Texas and Florida, Lennar’s two largest markets. The labor market is tightening too.
Berkshire’s stake lends Lennar credibility, but does not remove investment risk.
Following the Oracle of Omaha closely taught me to separate noise from facts.
If rates keep climbing, investors may need Buffett’s patience.
Lennar is giving up margin to keep homes moving, and it says the land headwind will not clear quickly.
Miller said rate cuts would be a meaningful tailwind, but Lennar is not building its plan around them. Investors shouldn’t either.
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