Lennar Corporation, the second largest home builder in the U.S. announced
on Tuesday that it was posting stunning losses for its third
quarter of 2007 which ended on August 31.
According to Reuters, Wall Street analysts had been expecting losses but in
the vicinity of 0.55 per share. Instead the returns came in at a loss of $513.9
million or $3.25 per share. One year ago the company had posted a profit of
$1.30 per share.
The builder also announced that sales were off 44 percent and that it had cut
35 percent of its jobs over the last year and anticipated further costs would
be necessary.
Like most other big builders and probably a lot of smaller ones, Lennar has
been canceling contracts to acquire land for future building.
In many cases this entails walking away from substantial deposits as well as
early development expenses such as feasibility studies and engineering costs.
According to Sudeep Reddy and Michael Corkery writing in The Wall Street Journal,
"The housing market is going into a deeper chill, and consumers are starting
to shiver."
The Journal stated that one major home builder, D.R. Horton Inc.,
is holding an auction of 53 new homes in San Diego this weekend and some units
will have starting prices half of prices advertised earlier.
On a one-bedroom unit, the starting bid is $149,000, down from a previous price
of $309,990.
The company's CEO Donald J. Tomnitz must have been preparing for this
action for months. He was quoted in March by the Associated Press as saying
that 2007 "is going to suck, all 12 months of the calendar year."
Other market segments that are closely, even loosely tied to housing construction
and sales are beginning to report some distress. Monday, Lowe's
reduced its earnings outlook for this year and Target lowered its estimate for
September sales. In August, Costco Wholesale Corp.'s sales at stores open at
least a year rose just 1%, much below an earlier forecast. According to Erin
Burnett on MSNBC Wednesday, one Home Depot supplier commented this week that
the market is entering uncharted territory with much lower numbers than seen
in earlier housing slumps.
New house sales figures are due from the Census Bureau later today. It would
be nice to hear some good news for a change.