Lennar Homes reported fourth quarter earnings this morning, and it appears the margin squeeze story is going to be a recurring issue for home builders. Lennar reported home building revenues that were 32 percent higher for the quarter compared to 2013. The only problem is that their expenses for the quarter were 33 percent higher. Lennar reported that margins are going to be pressured going foward, and all you have to do is look at their Houston numbers to see why.

Lennar Homes breaks Houston out as a separate division. Lennar delivered 768 homes for the quarter, up 14.63 percent. The average price of Houston home sold by Lennar in the quarter fell 3.24 percent from $278,000 in 2013 to $269,000 in Q4 2014. New Houston orders were 9 percent higher for the quarter, but also with a lower average price, falling from $273,000 to $271,000.

It looks like Lennar is experiencing the same problem reported by KB earlier this week. High home prices have strangled their growth, and now margins are under pressur to the collapse of oil prices. With builders heavily invested in energy-centric states like Texas, home builders could be in for a wild ride in 2015. What’s more concerning for home builders is that they are apparently oblivious to the consequences of the collapsing oil market. To see what I mean, just read the comment from Lennar’s CEO:

“Lennar Chief Executive Stuart Miller said Thursday that he expects the company to benefit from higher employment, low interest rates and falling gasoline prices.”

If Mr. Miller really believes that, then Lennar Homes is definitely going to have a tough time this year. That rubbish of higher employment and the supposed “wealth effect” of lower gas prices will NOT make up for the loss of jobs and stagnating wage growth in general. As Lance Roberts has pointed out, the net effect of a collapse in the oil market is not beneficial to the overall economy. If there really were a wealth effect from crashing energy prices, we wouldn’t have seen retail sales disappoint dramatically to the downside.

At some point, the builders are going to have to come to grips with the reality that the “recovery” isn’t really a recovery at all, not unless you are referring to the top 10% of the US population. Plunging Treasury yields are signaling flashing red signs all over the place for a reason. Most consumers are tapped out, and at some point the Fed and Congress will be forced to come clean regarding what they have done to facilitate the growing income and wealth inequality in this country. That inequality is precisely why there are fewer people left available to buy new homes that have been artificially inflated with market interventions. Home builders can muster all of the hopeful optimism they want, but it won’t change that simple fact. Until we address the real economic problems facing us as a country, it will be one wild ride indeed for US home builders.

Goldman recently lowered their three, six and twelve month forecast for oil prices to $41/bbl, $39/bbl and $65/bbl from $70/bbl, $75/bbl and $80/bbl. I hope they aren’t correct, but if oil prices do indeed overshoot to the downside, we’re going to see some motivated sellers of new homes in Houston Texas!