June 26 (Bloomberg) -- Lennar Corp., the third-largest U.S. homebuilder, said second-quarter earnings rose 33 percent as it sold more houses and prices gained. Orders fell 3 percent, and the company cut its earnings forecast for the rest of the year.

Net income in the three months through May increased to $324.7 million, or $2 a share, from $243.5 million, or $1.48, a year earlier, the Miami-based company said today in a statement. The average estimate of 16 analysts surveyed by Thomson Financial was $1.85 a share.

Toll Brothers Inc., Pulte Homes Inc. and KB Home lowered earnings forecasts within the past six weeks as demand waned. Builders have been hurt by the Federal Reserve's campaign to combat inflation and slow home-price growth by raising borrowing costs, which sent mortgage rates to a four-year high in May.

``Housing will be down this year, but it's not going to fall of a cliff because we have an expanding population that all need homes,'' Richard Yamarone, chief economist of Argus Research Corp. in New York, said before the earnings were released.

Lennar cut its 2006 earnings forecast to a range of $8 to $8.25 a share, from $9.25 a share. Analysts' estimates had been $8.15 a share, according to Thomson.

Competitors' orders fell by a greater amount. Pulte's plunged 29 percent in April and May, and KB Home's dropped 19 percent in the quarter ended May 31.

`More Challenging'

``We are experiencing slower new orders and higher cancellation rates,'' Chief Executive Officer Stuart Miller said in the statement. ``Consequently, the second half of the year will be more challenging.''

Lennar shares rose 95 cents to $45.49 as of 10:07 a.m. in New York Stock Exchange composite trading. The Commerce Department said today that sales of new homes unexpectedly rose in May to the highest level this year. Sales increased 4.6 percent to an annual rate of 1.234 million.

Lennar's shares have fallen 27 percent this year, compared with a 30 percent decline in the Standard & Poor's Supercomposite Homebuilding Index of 16 companies.

Quarterly revenue at Lennar rose 56 percent to $4.6 billion as the company sold 13,225 homes, up 44 percent from a year earlier. Its backlog of homes ordered and not yet built fell 1 percent to 17,990 from 20,536.

The bulk of orders for new U.S. homes occur in February, March and April as families with children plan to move before the start of school in September. Sales of new houses in the U.S. probably will fall 9.3 percent in 2006 to 1.16 million from 1.28 million last year, according to a June 20 forecast by Fannie Mae, the largest U.S. mortgage buyer.

Rates Surge

The average rate on a 30-year fixed mortgage jumped to 6.73 percent last week and probably will average 6.6 percent in 2006, the highest in five years, Fannie Mae said. The median new-home price was $237,300 last year, a gain of 7.4 percent that capped a 35 percent surge since 2001.

The Fed probably will raise its benchmark rate for the 17th consecutive time when it meets on June 28 and 29, according to a Bloomberg survey of 114 economists. The central bank's 16 rate increases since June 2004 have lifted official short-term interest rates to 5 percent from 1 percent.

Lennar has a stock market value of $7.02 billion, putting it behind D.R. Horton and Pulte. The company bought back 5 million shares in the quarter.

To contact the reporters on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net; Brian McGee in London at bmcgee3@bloomberg.net.

Last Updated: June 26, 2006 10:12 EDT