Housing Glut, Lennar Revenue off 44%, Other Goodies

A bunch of big news out of Wall Street today with the high (low?) lights being the following:

• Consumer sentiment falls to 2-year low after peaking in July (a massive reversal of sentiment)
• Lennar (a large OC-based home builder) sees its revenue fall 44% and miss even the most pessimistic analyst estimates
• Housing rises to an 18-year high as unsold home inventory sky-rockets amongst weakening existing home sales

Consumer Sentiment

Consumers are finally starting to realize that their homes are no longer the never-ending ATMs they thought they were, as mortgage equity withdrawal fueled seemingly unsustainable consumer spending.  Now that housing and job losses begin to mount consumers are not as confident as they were just two short months ago, when consumers were very confident in the direction of the economy.  From Bloomberg:

Consumer confidence slumped to the lowest level in almost two years and home sales weakened, threatening U.S. household spending and bolstering the case for the Federal Reserve to keep cutting interest rates.

The Conference Board’s index of consumer confidence fell more than forecast in September, to 99.8 from 105.6. The National Association of Realtors said August sales of previously owned houses dropped 4.3 percent and a separate index of home values fell the most in at least six years in July.

Lennar

The large OC homebuilder stunned even the most pessimistic of analysts this morning with a huge 44% drop in revenue last quarter and a near-$1 billion charge for write downs associated with land holdings; a problem that land-hungry homebuilders are going to be facing for a while to come.  More Market Watch:

For the quarter ended Aug. 31, Lennar said that it swung to a loss of $513.9 million, or $3.25 a share, from net earnings of $206.7 million or $1.30 a share in the year-ago period. Total revenue fell 44% to $2.34 billion as the company delivered 41% fewer homes and the average selling price decreased 6% from the previous year, driven mainly by higher incentives to attract nervous buyers. Lennar said that incentives averaged $46,000 per home in the latest quarter, up from $35,900 a year earlier.

New orders fell 48% to 5,804 homes.

In response the company is laying off 4,400 workers as new orders also fell almost in half.  No orders, no money, no jobs - that is unfortunately the way it goes these days.

Random question - who are these people who are willing to pay $25/share for these homebuilder companies?

Housing

Once again the NAR is going to be searching for their pencils to revise their estimates (downward of course); at what point does it become embarrassing for the purportedly industry leading organization to be wrong over and over? I guess the answer is never as the numbers and analysis coming out of the NAR lately have been nothing short of shameful propaganda.

From the Market Watch story:

With sales of existing homes falling 4.3% to a five-year low seasonally adjusted annual rate of 5.50 million in August, inventories of unsold single-family homes rose to an 18-year high.

Meanwhile, a separate gauge of home prices fell for the 12th straight month, with prices falling in 15 of 20 major cities over the past year. Prices in 10 major cities are falling at the fastest pace in 16 years.

Sales of existing homes were down 12.8% in August compared with August 2006.

Sales of existing homes fell in all four regions, dropping 2% in the Northeast, 9.8% in the West, 5.2% in the Midwest and 2.7% in the South.

Sales of single-family homes dropped 3.8% to a 4.81 million annual pace, the lowest since August 2002. Condo sales fell 8% to a 690,000 pace annualized, also a five-year low.

What’s amusing (or sad) to me is that the talking heads on CNBC and Bloomberg this morning are busy buzzing about this being the “bottom” or the “worst of it” when just this February we were talking about the same things when New Century and Fremont Investment and Loan were wiped off the map.

The facts remain that we have a ton of adjustable rate mortgages of dubious quality still set to adjust and we have a slew of prime Option ARM mortgages that won’t come in to their reset period until late ‘08 early ‘09.  These will continue to exert pressure on home inventory (upwards, of course) which will put more homes on the market, driving prices further.  Nouriel Roubini is calling for a 20% drop at least; and the Case-Shiller housing price index shows homes already off nationwide 3.9% over the last 12 months.

Folks this is not going to be pretty - and it ain’t getting better any time soon.

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