Homebuilders stalled out when it became clear we might get one rate cut at best, says Jim Cramer

Last week we heard from two of the nation's largest home builders, Lenore on Monday and KB Home on Tuesday. They told an interesting story. The opener's a really fascinating group right now. These stocks started rallying just at over two years ago, with the SPDR Home Builders ETF more than doubling during that period. And that's not supposed to happen when the Feds ratcheting up pitches rates, making mortgages much more expensive. This time was different because we got a huge housing shortage going on here. Meanwhile, rates came up so rapidly that existing homeowners won't sell because then they lose their ultra cheap mortgages from the age of your zero interest rates. That means new homes are often the only game in town. How long can that last? The homeowner started the year strong again because Wall Street initially figured we'd get maybe six rate cuts this year. But as it became clear that we might get one rate cut at best, the group stalled out. The feds higher for longer stance has been it's really taking a toll here. Home put our sentiments been worsening and investors seem unsure about what to do with the stocks. Don't buy, don't buy. Which is why we were watching these numbers so closely from an R and KP Home. So what happened? Well, in our port on Monday night, you know what the market hated? Stock fell nearly 5% the next day. But when KP Home reported Tuesday night, we saw a very different reaction. It's not jump nearly 3% the next credit yet. So why did Wall Street hate one and love the other? Let's start with the Leonard quarter. The actual results were good, a clean top and bottom line beat. But there were two problems here. First, Chairman Co CEO Stuart Miller provided a quote with the earnings release where he used a very, very, very, very, very, very bad word. He said purchasers remain responsive to increased sales incentives. Oh boy, incentives. That's how much one here. Incentives. That's why Lennar's average sales price of homes delivered was 4 and 26,000, down from 4 and 49,000 a year before. That's a big decline. Make matters worse, the company gave you a mixed outlook for the current quarter when ours new orders guidance came in a little light and their expected average sales price for deliveries was a bit below the consensus estimate. Worst of all, Magna said they'd earned 350 to 365 per share in the quarter when analysts were looking for 396. Wow. Ouch. Particularly because this company has been beaten and raising for I don't know how long. Lenore also find an update on its idea that it's been floating for a while now, the potential spin off of some of its land assets into a separate entity. They're now planning a six to $8 billion land spin off in order to become a little more asset light. And they said they made substantial progress for the past 90 days doing so. Not everyone loves this idea. Spent this spin off because well, in part because it seems to indicate the Babylon arse less Polish on the durability of housing demand and in part because there's a lot of uncertainty about how this thing would play out so that's why Lennar sold off but why did KB Home get so much love like Lennar KB Home gave us a robust top and bottom line beat. Unlike Lennar, KB Home at their average selling price increase. Oh OK, just slightly, but it's still increased .7% year over year coming in slightly better than expected in terms of KB homes guidance the company anticipated housing revenue was just slightly below what the analysts were looking for, but the expected average selling price came in slightly higher than anticipated. So doing a much better job of holding the line on pricing, certainly more than are more important. KP Home provides full year guidance and it raises full year outlook for housing revenue, average selling price and home building operating. Boy, that is really that's a triple play. That's exactly what we want. At the same time, it's worth noting these guys spent a lot less time talking about the need for sales incentives to drive businesses in the official comments from Chairman and CEO Jeff Messner. He said, quote, buyers remain resilient in their desire for homeownership despite the volatility in mortgage interest rates. End Quote. There were some incentive talk on the conference call. I don't don't get me wrong, they did. If somebody, in this case KB Home, was simply lamenting that mortgage rates didn't come down because they've been hoping to remove some interest rate related incentives, they still have to do that later this year if rates come down ever. So let's bring this all together. After viewing the quarterly results of both Lenore and KB Home, I'm actually more sanguine about Lenore's quarter than the market seems to be, although I also like KB Home a great deal and I, you know, I've been predisposed to like this group for a long time. Rather than one company doing well and another doing poorly, we're simply seeing two different strategies. Lennar has always been clear about its strategy. It wants steady delivery numbers so that it never gets backed up with too much inventory, which is when a home builder can really get in trouble during a downturn. If Lennar needs to increase incentives to move units, they're happy to do so because that number one priority is to keep moving units. KB Home, on the other hand, is more interested in holding the line on pricing than it is on growing deliveries. They're much less worried about getting stuck with excess inventory. It's the same dynamic we're seeing everywhere. If you keep prices high and risk alienating your customers, or cut price and bank on higher volume to make up the difference. The fact that they are seeing big increases in deliveries and an even bigger increase in orders tells me there's demand waiting in the wings of home builders and offer and and offer people slightly more generous terms. Or if say mortgage rates came down, which would really be a godsend. That's encouraging because it shows that the most important feature of the housing bull market, the structural imbalance between homes for sale and people who want to buy them remains generally in place. And we still got the housing shores. That's the wind at our back. There were some other one off issues that made Lenore quarter look worse while KP homes look better. Lenore's land spin off is somewhat of an overhang until we see the full details of the plan. But for now, I just say that I expect Lenore Stewart Miller can run a home builder better than practically anybody else on earth, and I trust they don't make the right decisions. Again, what makes me like Lennar here? So even though Lennar went down and KP Home went up after both reported last week, I'm pretty positive on both stories and the home builders more generally. While this should theoretically be a tough space if rates stay higher for longer, the housing shortage hasn't gone anywhere. The bottom line, if we get any relief on the interest rate front, Lennar's results suggest that could bring in a new wave of buyers, which is why I think this housing bull market is far from over. That money's back coming up. Put the pedal to the metal. It's a precious off the charts with silver and gold. Next, don't miss a second of Mad money. Follow at Jim Cramer on X Have a question? Tweet Kramer hashtag MAD mentions. 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