Lennar posts loss, says housing market may worsen
15 minutes ago
Lennar Corp. (NYSE:LEN - news), the second-largest U.S. home builder, posted a quarterly loss on Tuesday, forecast a loss in the current quarter and warned that the housing market could deteriorate further.
"As we look to our third quarter and the remainder of 2007, we continue to see weak, and perhaps deteriorating, market conditions," Stuart Miller, chief executive, said in a statement.
"Given uncertain market conditions, we continue to lack visibility as to future results, but we currently expect to be in a loss position in our third quarter," he said.
Lennar recorded a net loss of $244.2 million, or $1.55 a share, for its fiscal second quarter, ended May 30, compared with a profit of $324.7 million, or $2 a share, a year earlier.
The results included charges of $329 million, or $1.33 per share, for a loss of land sales, which included a write-down of land values and write-offs of deposits on land options.
Before charges, the company lost 23 cents per share, while analysts expected a profit of 1 cent per share, according to Reuters Estimates.
Wall Street expects the company to earn 20 cents per share before items in the current quarter.
The U.S. housing market has been suffering from a steep downturn for more than a year as high prices and climbing interest rates have deterred prospective buyers. Speculators also have retreated from the market, unloading homes bought as short-term investments.
The industry is grappling with a downturn in demand and a glut of supply. Home builders have responded, cutting prices, adding freebies and shrinking their businesses to wait out the downturn. Lennar said incentives to invigorate sales ate into quarterly gross margins, which fell to 13.6 percent from 23.7 percent in 2006.
Lennar's home-sale revenue fell 33 percent to $2.7 billion, as the number of homes declined 29 percent. Signed prospective buyers canceled their orders at a rate of 29 percent.
The average selling price of a Lennar home dropped 7 percent to $298,000.
New orders during the quarter fell 31 percent to 8,056 homes, excluding unconsolidated businesses.
In pre-market activity, shares of Lennar traded at $37.97, down 2 percent from their Monday close of $38.75 on the New York Stock Exchange. Year-to-date, Lennar shares are down 26 percent, while the sector is off 24 percent, according to the Dow Jones U.S. Home Construction Index (^DJUSHB - news).
According to BuilderOnline, Lennar overtook Pulte Homes Inc. (NYSEHM - news) as the No. 2 U.S. home builder, as measured by the number of homes sold last year, behind D.R. Horton Inc.(NYSEHI - news)
(Additional reporting by Dhanya Skariachan in Bangalore)
Originally posted by: Trianon
No good news so far. RE market still in big trouble, with no end in sight.
Originally posted by: senseamp
I am shorting real estate through UltraShort Real Estate ProShares (symbol SRS) and I am up something like 18% in 2 weeks.
Subprime borrowers are going to crack, so I am not in a hurry to sell until the market is down at least 30% more.
Then I'll sell my short position and buy a house.
Originally posted by: Trianon
I am a realist, and ATM I can't see any budding economy branch that can compensate for money to be lost in overheated RE market. No web economy, bio tech or anything even remotely similar with good return prospects.
Originally posted by: Mardeth
<div class="FTQUOTE"><begin quote>Originally posted by: senseamp
I am shorting real estate through UltraShort Real Estate ProShares (symbol SRS) and I am up something like 18% in 2 weeks.
Subprime borrowers are going to crack, so I am not in a hurry to sell until the market is down at least 30% more.
Then I'll sell my short position and buy a house. </end quote></div>
Off topic question. Ive never shorted but in Finland shorting is rarely available and all but one bank require you to buy back the same day. Obviously you can short everyday, but the expenses would be high. There is one bank that allows 3 days without penalty. You can short for longer in any bank but the rate is very high. How long do you keep those short positions and how big are your expenses?
Originally posted by: Mardeth
Ahh. Okay that clears it up then. Quite a risk your taking but it seems to be paying off . If I remember correctly you had a house which you sell and the money you got, you used to invest. Have you paid your mortgage back or are you using it as a leverage?
Originally posted by: Marlin1975
Yep me and my wife just got a house in N.VA(close to DC) for $369K. Someone paid $525K for the same house 2 years ago.
So we came out well.
Negative housing data pile up
Meritage reports ugly preliminary results with no recovery in sight
By John Spence, MarketWatch
Last Update: 10:43 AM ET Jul 6, 2007
BOSTON (MarketWatch) -- Meritage Homes Corp. said its preliminary home orders fell 28% and its cancellations bumped up in another sign that builders continue to struggle with a slumping housing market with scant relief seen in the near future.
The Scottsdale, Ariz.-based company Friday said its preliminary second-quarter home orders fell 28% from a year earlier to $502 million, while its cancellations rose to 37% of gross orders, up from 32% in the year-ago quarter and from 27% in the first quarter of 2007.
"Weak demand and high inventory levels have increased competition among home builders, pressuring margins despite reductions in new home starts, lot supplies and operating costs," said Chief Executive Steven Hilton in a statement.
The company said it expects to book additional pre-tax charges between $75 million and $80 million for the quarter as a result of inventory impairments and land-option write-offs.
In early June, Meritage warned that April and May homes sales were weaker than expected, and backed away from its previous earnings outlook for 2007. On April 25 when the company reported first-quarter results, it had predicted full-year net income in the range of $2 to $2.50 a share, but the market has worsened since then. Analysts polled by Thomson Financial are looking for profit of $1.15 a share, on average.
Chart of MTH
The quarterly earnings season is off to an unpleasant start for the home builders with some of the stocks setting new 52-week lows.
In late June, KB Home said it swung to a loss as home deliveries dropped 36% from the previous year and home prices also fell. Another large builder, Lennar Corp. , also suffered a quarterly loss, blaming impairment charges and growing inventories of homes for sale which pushed prices lower and further squeezed margins.
Many signs are pointing to a housing market that may worsen further before it improves. Economists say the market still needs to burn off excess inventory created when speculators fled the market when the mood shifted in 2005. Problems in the subprime-mortgage market and rising mortgage rates also continue to weigh.
Data paint bleak picture
On June 25, the National Association of Realtors said sales of existing homes in May were down 10.3% compared with a year earlier. Meanwhile, the resale inventory rose to an 8.9-month supply, the largest in roughly 15 years. The next day, the Commerce Department estimated U.S. new-home sales fell 1.6% in May, the 18th-straight month that sales fell from the previous year's levels.
Earlier this week, the NAR said pending home sales, which are seen as leading indicator, fell 3.5% in May. Banc of America Securities analyst Daniel Oppenheim said the data indicate inventories could rise even more. He estimated inventories of existing homes for sale could approach 10 months of supply, "likely at or above the peak in the late 1980s [and] early 1990s" of the last housing downturn.
"We think a lower level of construction activity is necessary to work off the inventory overhang and eventually lead to price stability, since demand is not expected to improve near-term as price declines and high inventory levels depress buyer confidence," Oppenheim wrote in a report to clients.
"It seems that home builders' efforts to remove inventory have failed to ignite the market and instead, the psychological factors of home buyers are playing a dominant role on the market," wrote Lili Zhang, an analyst at independent research firm Wall Street Strategies, in a report this week.
Buyer confidence has been further shaken by the trouble in subprime mortgages, which are designed for customers with weaker credit histories. Foreclosures are up and the subprime mess has spilled over into hedge funds that made bets in riskier mortgage-backed securities.
"The home-building industry is in a severe recession, the subprime loans created a potentially major psychological problem for investors, and now the related hedge-fund debacle is in the news every day," wrote A.G. Edwards Chief Market Strategist Al Goldman in commentary earlier this week.
Additionally, the critical spring selling season has been a bust for home builders despite "aggressive price reductions as a means to ignite the market," Zhang at Wall Street Strategies said.
"Taking all these factors into account, we feel the housing market will not bottom out until the end of 2007, or early 2008," the analyst added. "The housing market is cyclical in nature, and a housing downturn could easily last for over two years, and would not fully rebound [until] another two years later." End of Story
John Spence is a reporter for MarketWatch in Boston.
Originally posted by: Starbuck1975
SoCal is literally bursting at the seam with foreclosures...every weekend more and more open house signs are emerging throughout the region.
When my wife and I first moved to SoCal in 2004, we started looking at real estate, but were already priced out by a housing bubble that was close to reaching a peak. The RE agents we dealt with at the time told us that "now is the time to buy" and "they aren't finding any more land in SoCal" and "they aren't building any more homes in SoCal."
We chose not to drink the Cool-Aid, rented an apartment, and have been waiting.
Now, when we go to an open house, the RE agents sing a different tune...suddenly, they are willing to negotiate on price...sellers are willing to accept buyer demands for upgrades and repairs, as opposed to the "as is condition" sales of the past 4 years.
As for the other Cool-Aid talking points...there are 5 major community developments going up within a 20 mile radius of our apartment...so much for the false sense of urgency BS.
The subprime meltdown is going to hit SoCal, and hit it hard. It's simple economics...the creative financing of the past few years allowed many families to go into homes they couldn't otherwise afford...it created artificial demand, which created the artificial bubble of phantom equity. That, and the subprime craze of the past few years also introduced a great deal of fraud into the system, thanks to all the emerging real estate investors and aspiring Donald Trumps of the world...I can't tell you the number of people I work with who bought into the Ponzi scheme, and now are in danger of losing not only their investment properties, but their primary residence as well...greed tends to do that.
Look around on redfin and other sites...comp busters are emerging in nearly every neighborhood...homes that were selling in the 700ks and 800ks when we moved out here are now down to the high 500ks...and they still can't sell. The luxury home market is taking an especially hard hit...I am talking $1M or more reductions in areas like Newport Beach and Laguna Beach...but but but Mr. RE agent, I thought EVERYONE wants to live in SoCal...apparently not.
Without creative financing, only qualified buyers who can afford a 15% to 20% downpayment and a 30 year fixed at current interest rates can enter the market...and right now, the median home price is well above the grasp of the median household income...despite what people think about SoCal, the vast majority of households do not cross the 200k barrier, which means the reasonable market value of a starter home should sit in the 400ks.
It is unfortunate that a lot of people will lose their homes, but on the other hand, it kind of serves them right...we never understood the insanity of people using phantom equity to go out and purchase tons of luxury goods and automobiles...we never understood why when driving through a neighborhood, many of the homes...i mean investment properties...seemed empty.
All of the conditions are in place that will make this housing bubble crash make the 90s crash look like a walk in the park.
Originally posted by: LegendKiller
It's laughable that anybody would think that the bottom is even close at this point. I expect the other shoe to drop this fall as more rates reset. Then, as we enter into the Holiday season you'll see a massive spike in delinquencies, defaults, and bankruptcies, since Dec/Jan/Feb/Mar are usually the low points in collections as people are tapped out from buying toys.
By this time next year you'll be seeing a lot of Congressional investigations.
Subprime contagion?
Ohio's attorney general is investigating the role that credit-rating agencies like Moody's played in rubberstamping dicey bonds, report Fortune's Katie Benner and Adam Lashinsky.
By Katie Benner and Adam Lashinsky, Fortune
July 5 2007: 11:16 AM EDT
(Fortune Magazine) -- While Bear Stearns is the most recent financial institution to find itself caught up in the subprime-mortgage quagmire, the three credit-rating agencies - Standard & Poor's, Moody's (Charts), and Fitch - may be the next ones to see their good names dragged through the mud.
The reason? Ohio attorney general Marc Dann is building a case against them based on the role he believes their ratings played in the marketing of risky mortgage-related securities.
"The ratings agencies cashed a check every time one of these subprime pools was created and an offering was made," Dann told Fortune, referring to the way the bond issuers paid to get their asset-backed securities (ABSs) and collateralized debt obligations (CDOs) rated by the agencies. These ratings run from AAA for debt with the lowest risk of default all the way down to noninvestment- grade bonds, which many pension funds are prohibited from purchasing in their charters. "[The agencies] continued to rate these things AAA . [So they are] among the people who aided and abetted this continuing fraud," adds Dann.
Ohio has the third-largest group of public pensions in the United States, and they've got exposure: The Ohio Police & Fire Pension Fund has nearly 7 percent of its portfolio in mortgage- and asset-backed obligations.
Moody's says that Dann's accusations are nonsense. "We perform a very significant but extremely limited role in the credit markets. We issue reasoned, forward-looking opinions about credit risk," says Fran Laserson, vice president of corporate communications at Moody's. "Our opinions are objective and not tied to any recommendations to buy and sell." She further points out that while some securities have lost significant value, none have actually defaulted. (S&P and Fitch declined to comment.)
Dann and a growing legion of critics contend that the agencies dropped the ball by issuing investment-grade ratings on securities backed by subprime mortgages they should have known were shaky. To his mind, the seemingly cozy relationship between ratings agencies and investment banks like Bear Stearns only heightens the appearance of impropriety. In addition to receiving fees from bond issuers that want ratings, S&P, Moody's, and Fitch do not vet data provided by these customers - information the agencies use to make their credit assessments. It's a bit like a take-home final. Or as Moody's puts it in its own code of conduct, "Moody's has no obligation to perform, and does not perform, due diligence." The other two agencies have similar provisions.
Moody's and its cohorts might have some wiggle room. "The agencies are on fairly strong ground that their ratings are just opinions, but that doesn't absolve them from liability risk," says Steve Thel, a securities law professor at Fordham University.
Dann contends also that the ratings are used as benchmarks by institutional investors. He is not alone in this assessment. According to experts in structured finance valuations, the ratings agencies are the central drivers, particularly in the riskier areas of asset-backed securities markets. The pool of buyers would be much smaller without a rating because pension and mutual funds hold only investment-grade bonds, says Christopher Whalen, who sold asset-backed securities at Bear Stearns and is now a principal at Institutional Risk Analytics, which provides tools to credit officers to assess bonds.
"The rating drives everything," adds Sylvain Raynes, a former Moody's analyst and currently a principal at R&R Consulting, a firm that examines these securities.
Others point out that CDOs are too complex for even sophisticated investors to parse, so the ratings take on great importance. "It is unreasonable to think that people could do the quantum math to figure out the ultimate aggregate default rate on a CDO. So, yes, there is a greater expectation that the gatekeepers will scrutinize the underlying credit," says Doug Cifu, a partner who specializes in private equity and finance at Paul Weiss Rifkind Wharton & Garrison.
Regardless of whether a lawsuit materializes, the ratings agencies already seem to be policing themselves. Of the pool of securities created from 2006 subprime mortgages, Moody's has downgraded 19 percent of the issues they've rated and put 30 percent on a watch list. Sadly for Wall Street, if the ratings agencies feel the need to downgrade even more, it will certainly constrict the cheap debt that has fueled the bull market.
Or as Whalen puts it, "The Street dragged everyone into increasingly bizarre and illiquid instruments, and there was huge profitability there, but what it did was buy itself a lot of trouble."
Scum.Originally posted by: senseamp
I have a big position in SRS, the Ultra-Short Real Estate ETF. People are still in denial about the extent of what is coming.
Originally posted by: Vic
Scum.Originally posted by: senseamp
I have a big position in SRS, the Ultra-Short Real Estate ETF. People are still in denial about the extent of what is coming.
You don't have to buy a house (no one cares, really), but to profit directly and intentionally from the misfortune of others is disgusting, and shows exactly what your ethics are. In that regard, the only denial is yours. You are literally betting on foreclosures, the burden of which will fall mostly on the working classes.
Originally posted by: Vic
Scum.Originally posted by: senseamp
I have a big position in SRS, the Ultra-Short Real Estate ETF. People are still in denial about the extent of what is coming.
You don't have to buy a house (no one cares, really), but to profit directly and intentionally from the misfortune of others is disgusting, and shows exactly what your ethics are. In that regard, the only denial is yours. You are literally betting on foreclosures, the burden of which will fall mostly on the working classes.
Agreed.Originally posted by: Trianon
Originally posted by: Vic
Scum.Originally posted by: senseamp
I have a big position in SRS, the Ultra-Short Real Estate ETF. People are still in denial about the extent of what is coming.
You don't have to buy a house (no one cares, really), but to profit directly and intentionally from the misfortune of others is disgusting, and shows exactly what your ethics are. In that regard, the only denial is yours. You are literally betting on foreclosures, the burden of which will fall mostly on the working classes.
I think this personal attack was uncalled for, all senseamp did is pointed out the way to make money in declining market, if it was going in the opposite direction, he would be losing money. That way one can generalize the entire stock market world as scum, because they make money mostly when someone else makes poor investment.
Originally posted by: Vic
Scum.
You don't have to buy a house (no one cares, really), but to profit directly and intentionally from the misfortune of others is disgusting, and shows exactly what your ethics are. In that regard, the only denial is yours. You are literally betting on foreclosures, the burden of which will fall mostly on the working classes.