Lennar Corp. is in advanced talks to sell its real-estate lending unit, looking to offload the business at a time when the nation’s largest home builder and its peers are struggling alongside a stagnant housing market.
The Miami-based company is in discussions with the private-equity firm Stone Point Capital LLC for the sale of Rialto Capital, according to people familiar with the matter.
A Lennar spokeswoman declined to comment. Representatives of Stone Point Capital and Rialto didn’t respond to requests for comment. It isn’t clear what the business may be worth, and there is no guarantee there will be a deal.
Lennar said in April that it was considering a sale of Rialto as part of the company’s strategy of spinning off or selling noncore subsidiaries to focus on its main home-building business.
That business has come under increasing stress. The share price of the iShares exchange traded fund that tracks the home-building industry is down nearly 22% this year, compared to a 7.9% gain in the S&P 500 stock index. Lennar shares have lost 28% in 2018.
Lennar and other home builders like PulteGroup Inc. and Toll Brothers reported solid earnings for the most recent quarter, and they forecast strong sales in the months ahead. But a slumping housing market has weighed on investor sentiment and led many to sell any company tied to construction, and home sales more broadly.
Despite a strong economy and buoyant consumer confidence, existing home sales have fallen on an annual basis for the last six consecutive months. A shortage of inventory, high prices and a tax law that reduced incentives for home ownership have contributed to a slowing housing market this year.
The pace of new-home construction has also slowed. Rising lumber and land prices, labor shortages and slowing demand have all challenged builders. Home-builder sales slowed 3% in September compared to a year earlier, according to a survey that real-estate consultant John Burns conducts of 400 builders across the country.
“They’ve had a tough time opening new communities because land has gotten pretty expensive,” Mr. Burns said.
Borrowing to buy a new home is also getting more expensive. Rising bond yields are also pushing up 30-year mortgage rates toward 5%, their highest levels in nearly eight years.
When the housing market started to rebound six years ago, rock-bottom interest rates encouraged homeowners to borrow and trade up for a bigger home. But rates are now about a percentage point higher than what the average homeowner currently pays, according to CoreLogic Inc.
“We’ve exhausted that audience,” said Jack Micenko, a senior analyst at Susquehanna International Group, a financial firm. “The math doesn’t add up as much.”
Lennar, whose homes are priced near the middle of the new-home market, is in a particularly tough spot, some analysts said.
Toll Brothers homes are priced around $850,000, and it has been able to attract more affluent buyers who are benefitting from the stock market’s record run. D.R. Horton , which focuses more on starter homes, has homes priced on average around $300,000, according to Credit Suisse. Lower-priced starter homes are still selling well because some millennials are starting to buy their first homes.
Lennar’s typical buyer may be the most challenged by a steep run-up in prices, now coupled with higher interest rates. The builder has an average-priced home around $400,000, and their buyers are more likely to migrate to lower-priced new homes or less expensive existing homes, analysts said.
Lennar executives remained upbeat on the most recent earnings call last week. They said that they are seeing a soft spot in the market, but that the underlying dynamics suggest it will rebound in the coming year.
“I think there’s a pause,” said Stuart Miller, Lennar’s executive chairman. “I think there’s a catch-up.”
Any sale of Rialto could provide Lennar additional capital to invest in its core, home-building business for when the market snaps back, some analysts said. “As they monetize that business or those assets it can be redeployed elsewhere,” Mr. Micenko said.
Lennar said in April that it had hired Wells Fargo and Deutsche Bank to look at strategic alternatives for Rialto, including a possible sale.
During an investor call last week, Mr. Miller said the home builder has received a number of “attractive” offers for Rialto, adding that the company is currently evaluating them. He said that he will sell only if the price and terms negotiated are attractive enough.
Rialto is a real-estate investment and management company that focuses on distressed assets. It was launched in 2007, after the property market began to teeter, by Lennar and Jeffrey Krasnoff, a former Lennar executive. He also co-founded LNR Property LLC, another real-estate firm that was among the first to invest in commercial mortgage backed securities.
Stone Point Capital, based in Greenwich, Conn., focuses on the financial-services industry.
Lennar became the country’s largest home builder by revenue after acquiring rival CalAtlantic Group Inc. this year in a $5.7 billion deal, plus assumption of debt.
Write to Craig Karmin at craig.karmin@wsj.com, Laura Kusisto at laura.kusisto@wsj.com and Dana Mattioli at dana.mattioli@wsj.com