The Wall Street Journal-20080125-The Stimulus Package- Lennar Posts Big Loss- Braces for Further Weakness
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The Stimulus Package: Lennar Posts Big Loss, Braces for Further Weakness
A WSJ News Roundup
Lennar Corp., one of the nation's biggest home builders, posted a massive quarterly loss of $1.25 billion as it wrote down the value of land holdings and suffered from slumping sales and softer home prices.
The Miami-based company said it was girding for tough times to continue. "As we look ahead to 2008, we are not expecting market conditions to improve, and perhaps might continue to decline in the near term," said President and Chief Executive Stuart Miller. "Nevertheless, the strength of our balance sheet, bolstered by the cash generated through our fourth-quarter strategic moves, will keep us well positioned to weather these turbulent times."
The housing market -- ground zero of the credit crunch -- has yet to register anything close to a recovery. Builders continue to cut inventory prices. Although interest rates have come down, many consumers are unable to secure funding -- and others are worried about deteriorating value. Traffic has slowed to a trickle and cancellation rates remain high.
The National Association of Realtors said yesterday that sales of single-family homes and condominiums fell again in December, ending a year in which sales of single-family homes plunged by the largest amount in a quarter century.
The trade group said existing-home sales fell to a 4.89 million annual rate in December, down 2.2% on the month. For 2007, existing- home sales tumbled 12.8% to 5.652 million. Inventories also dropped, down 7.4%, but, at 3.91 million, supply remains high. The median home price was $208,400 in December, down 6% from $221,600 in December 2006.
Laurence Yun, an NAR economist, said conditions in housing could begin to turn around with Congress's economic-stimulus package, which is expected to raise the conforming loan limits for Fannie Mae and Freddie Mac, the government-sponsored mortgage agencies, beyond the current $417,000. The higher limits would allow the companies to buy bigger loans in areas with high housing costs.
Lennar's loss for the fourth quarter ended Nov. 30, which worked out to $7.92 a share, was wider than the fiscal third-quarter net loss of $513.9 million, a then-record for the 53-year-old company. Revenue dropped 49%. The company didn't provide earnings guidance for 2008.
Investors, who had expected a large loss, bid up Lennar shares. The stock rose $1.27, or 8.5%, to $16.21 in 4 p.m. composite trading on the New York Stock Exchange.
Lennar's results included, among other write-offs, $970.1 million in valuation adjustments. In November Lennar announced a "strategic land investment venture" with Morgan Stanley Real Estate, selling about 11,000 home sites in 32 communities, including raw land and partially developed sites, for $525 million, nearly 60% below the $1.3 billion book value.
The company's new home orders fell 51% to 4,761, with a cancellation rate of 33%. The average sales price fell 3.7% to $291,000. Mr. Miller said Lennar has generated cash by reducing inventory through price cuts and offering bigger incentives.
Lennar cut its work force by 35% in 2007.
