Florida Housing Market Blamed By Home Builder For Continued Losses

Given the current cost of a Florida mortgage and the tepid demand for homes among would-be buyers, the Sunshine State hasn’t been so sunny for Bonita Springs-based home builder WCI Communities Inc.

For the first time in several years, the company reported a quarterly loss Tuesday, blaming mostly a slowdown in the Florida real estate market.

The company lost $64.6 million, or $1.52 a share, in the fourth quarter. That compared to profits of $54.6 million, or $1.20 a share, a year ago.

In a tough Florida market marred by high home prices, property taxes and insurance premiums, WCI has seen far fewer home sales and more contract cancellations and defaults.

In the quarter, WCI recorded real estate inventory impairment losses of $91.4 million, related in part to discounts and buyer incentives it has offered to try to spur sales.

In the fourth quarter, WCI reported its incentives averaged 20 percent on new sales, twice the amount offered in other quarters. Write-offs for the quarter totaled $118.3 million - a figure that includes the costs of land options for projects WCI no longer plans to develop.

“2006 was a tough year,” said Jerry Starkey, WCI’s CEO. “I think it was characterized essentially by an eroding in consumer confidence, sliding demand and rising cancellations … The fourth quarter offered no relief…”

Usually, the fourth quarter is WCI’s strongest of the year. But with the demand for Florida home mortgage loans sliding, WCI saw a huge spike in cancellations for its traditional single-family and multi-family homes.

About 22 percent of contract purchasers scheduled to close in the quarter defaulted, compared to about 1 percent a year ago. Gross orders totaled a healthy 257 units, but that was almost totally offset by 249 cancellations.

For the year, the cancellation rate in WCI’s traditional home-building division was about 40 percent. The home builder didn’t see near as many cancellations for its condominium tower residences in 2006. But in the fourth quarter, there were 27 defaults and five new orders.

“No towers were introduced to the market in 2006, and so we didn’t have the benefit of new orders coming from new towers,” Starkey said.

Daniel Oppenheim, an analyst with Banc of America Securities in New York, said that this is an indication of the “continued deterioration in demand in Florida” and expects home prices to continue to fall because of the weakness in the Florida market.

Florida accounts for about 85 percent of WCI’s business and traffic in the state was down by about 50 percent, Starkey said. While traffic is up for home builders this month in Florida, compared to last month, it’s still down from a year ago.

The slump in Florida is far-reaching, with other builders in the Southwest Florida housing market struggling with slower sales and cancellations.

On Tuesday, Hovnanian Enterprises Inc., one of the nation’s largest home builders, said it expects to report a first-quarter loss, primarily because of charges related to its operations in Lee County, where it targets first-time home buyers.

WCI officials remain optimistic about the Florida real estate market.

“When America wakes up from this slump and this fear of buying homes I think we will see Florida return to one of the top home building markets in the entire United States, as it has been historically,” Starkey said.