Florida Home Builder Posts Huge Quarterly Loss

A Florida-based home builder posted a $244.2 million loss for its second quarter, as the lackluster Florida housing market - as well as national sales - continue to take a heavy toll on builders.

Lennar Corp. CEO Stuart Miller said Tuesday there is little end in sight for the slowdown, and predicted another loss in the third quarter.

“We continue to see weak, and perhaps deteriorating, market conditions,” Miller said, who called the Miami-based home builder’s second quarter performance “disappointing.”

Lennar’s loss for the second quarter, which ended May 31, compares to the $324.7 million the company earned for the same period a year ago, even as Florida mortgage demand was cooling.

The Miami home builder’s revenue was $2.9 billion, 37 percent less than the second quarter last year when the company did $4.6 billion in business.

Lennar ranks among the nation’s biggest home builders.

Largely a single-family home builder, it focuses on Florida, Texas and California. Lennar’s earnings are watched as a barometer of the market, as it is the first big builder to report its second quarter earnings.

Since the housing boom ended in 2005, residential real estate developers of all stripes have struggled to maintain profitability.

Last month Puig Inc., a privately-owned condo conversion company in Hialeah, filed for bankruptcy protection in Miami with more than $100 million in debt.

Facing the downturn, Lennar launched a strategy last year to sell homes already in its development pipeline at whatever price the market will pay while paring down land holdings and slowing starts in the South Florida real estate market.

The moves have reduced profitability, but the aim is to raise cash for when the Florida housing market market turns brighter.

Lennar has also cut costs, from limiting the number of faucets it purchases for homes and reducing fees with contractors to shedding more than 20 percent its workforce.

The home builder reduced its average sales price 7 percent in the second quarter in an attempt to lure Florida mortgage loan applicants.

Last year an average new home went for $322,000, but this year it was $298,000. Yet many buyers are still walking away.

The home builder reported a contract cancellation rate of a shockingly high 29 percent was buyers continued to ditch deposits in the quarter.

For the market to recover, three things must happen:

• The growing inventory of homes on the market must stabilize and start to be absorbed.
• The mortgage markets must settle, especially in the bad credit Florida mortgage sector.
• Florida consumer confidence must be restored so purchasers believe in the value of a home.

Yet when any of the three will happen remains far from clear.

SOURCE: Miami Herald