Homebuilders say real estate news isn’t all bad

Friday, June 26, 2009 | 12:10 p.m.

Two homebuilders active in Las Vegas offered good-news, bad-news scenarios in their second-quarter financial reports.

KB Home today said it lost $78.4 million or $1.03 per share in the quarter ended May 31. Revenue of $384.5 million was down 40 percent from the year-earlier quarter as the recession reduced activity at its new-home sales centers.

Jeffrey Mezger, CEO of the Los Angeles company, said: "Looking forward, although key economic indicators remain mixed, we are beginning to see signs that some negative housing market trends may be moderating at both the local and national levels. Ongoing foreclosure activity, which has increased housing supply and exerted downward pressure on home prices in a number of markets, is also leading housing affordability to record levels. Job market weakness and tight mortgage lending standards continue to restrain demand, yet consumer confidence appears to be growing. While these conflicting market signals make it premature to declare that housing has reached the end of its severe, multi-year correction, they may indicate we are approaching a point of relative stability, especially if the overall economy rebounds and mortgage interest rates remain low."

But he added: "Given the uncertainty of when and to what extent general economic and housing market conditions may improve, we continue to conservatively manage our business."

For KB Home, the loss was an improvement from the same quarter in 2008, when it lost $255.9 million or $3.30 per share.

On Thursday, Lennar Corp. of Miami said its quarterly revenue fell 21 percent to $891.9 million as it lost $125.2 million, or 76 cents per share. That compares to the $120.9 million, or 76 cents, lost in the 2008 second quarter.

CEO Stuart Miller said: "During the second quarter, the housing market experienced an uptick in sales of new homes, compared to the first quarter, as more confident homebuyers took advantage of increased affordability. Declining home prices, historically low interest rates and government stimulus programs, such as the $8,000 federal tax credit and the $10,000 California state tax credit, created unique purchasing opportunities and made it more compelling for homebuyers to enter the market.''

But he cautioned: "While we are sensing pent-up demand in the market, rising unemployment, increased foreclosures and tighter credit standards continue to present challenges for the industry to generate sales at a more robust pace and at stabilized pricing. This combined with a recent spike in mortgage rates has made it difficult to predict when the market will ultimately turn the corner."

The reports were issued as new data showed continuing problems for homebuilders. They continue to lose home-sale market share to foreclosure-driven sales of existing homes, and the problem is expected to worsen as more adjustable-rate mortgages reset upward.

U.S. new home sales dropped 0.6 percent in May from April to an annual pace of 342,000, the Commerce Department reported this week.

And about 1 million adjustable-rate mortgages are scheduled to reset higher in the next four years, real estate data firm First American CoreLogic of Santa Ana, Calif., reported, according to Bloomberg News.

About three quarters of those loans will adjust through 2011, Bloomberg reported. With high unemployment leaving many Americans unable to afford the higher payments, many of those mortgages are likely to end up in foreclosure.

Separately, Local Market Monitor of Cary, N.C., issued its latest Home Price Forecast and Las Vegas ranked on the negative end of that study, which covers more than 300 U.S. markets. The forecast predicts local market behavior over the next 12 months.

Among markets with populations greater than 600,000 -- the 10 markets with the best expected performance in home price are:

--Baton Rouge, La.

Buffalo-Niagara Falls, N.Y.

Dallas-Plano-Irving, Texas

Fort Worth-Arlington, Texas

Houston-Sugar Land-Baytown, Texas

Little Rock-North Little Rock-Conway, Ark.

McAllen-Edinburg-Mission, Texas

Oklahoma City, Okla.

Rochester, N.Y.

San Antonio, Texas

Syracuse, N.Y.

Tulsa, Okla.

Wichita, Kan.

"These are markets that did not have a large boost in home prices over the last few years and therefore, even though the economy is doing poorly, no adjustment in prices has been necessary," said Ingo Winzer, president of Local Market Monitor. "Steady economic growth and price appreciation have helped these markets remain stable."

The 10 largest markets with the worst-expected performance in home prices are:

Bakersfield, Calif.

Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla.

Fresno, Calif.

Las Vegas

Miami-Miami Beach-Kendall, Fla.

Orlando-Kissimmee, Fla.

Oxnard-Thousand Oaks-Ventura, Calif.

Phoenix-Mesa-Scottsdale, Ariz.

Riverside-San Bernardino-Ontario, Calif.

Stockton, Calif.

West Palm Beach-Boca Raton-Boynton Beach, Fla.

Winzer said these markets, which are expected to have the largest declines in home values over the next year, are also among those that previously had the biggest price booms. This was attributed in large part to speculative buying, including the repercussions of inflated housing construction on the local job market and investor portfolios, Winzer said.

"We're going to see prices fall below equilibrium in many of these markets," said Winzer. "Prices are going to continue to decrease in some of these markets for several years before they really stabilize."

Discussion: 9 comments so far…

By goingbust

6/26/09 at 1:32 p.m.

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I wonder though, how will the home builders fare going forward? Sure, sales will rebound some. But housing prices will remain depressed for some time. Will they make money in the new market?
By markp

6/26/09 at 2:09 p.m.

Suggest removal

can people borrow money to buy these houses????
By OpenRange

6/26/09 at 2:32 p.m.

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Here's a clue: build new homes with partial off-grid energy and water recycling systems. The sprawling and empty cracker boxes are dysfunctional in a desert and, frankly, are symbols of their greed.
By mcmc_john

6/26/09 at 8:12 p.m.

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If it wasn't so troubling it would be funny that we see a positive position when one builder claims they only lost 87 million and another builder only lost 120.9 million dollars in a quarter...

Does anyone wonder how can any builder drop their prices over 60% and still stay in business... Were they really screwing the public that much during the hey days?

Or are they just dumping property so they can get out of town after they reduce their land banks? Ensuring that they will keep the Las Vegas market depressed for at least ten years...while they move on.

We better learn how to say "Moratorium on new home construction" or we will never get out of this mess.
By mcmc_john

6/26/09 at 8:26 p.m.

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A 3 year Moratorium on new homes would make the builder hold onto their losses while the public would get healthy first.... isn't this government about "We the people"

Stopping the supply of new homes in Clark county while letting the demand increase naturally would help send the home prices back up to an honest level; Allowing those that are playing the game fair, by holding onto their homes and not going to forclosure to recoup some of the losses they took because of the builders greed.

Once the people get healthy then by all means let the builders get healthy ... not the other way around....

The politicians will only react if the people react .... can anyone hear

MORATORIUM .... MORATORIUM ... MORATORIUM ...

all the member of the AARP should be chanting these words...
By perry161492

6/29/09 at 4:13 a.m.

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they going to make money because these houses are piece of s*** u have illegal building them the only perfect house on the lot are the model homes
By perry161492

6/29/09 at 4:15 a.m.

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these houses are made of styrofoam and plaster i know i own them
By dipstick

7/2/09 at 5:28 a.m.

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the local governmernt doesnt want a moratorium on new housing; they want tax money NOW so they can get paid and get their annual raises and perks; if they were looking out for the taxpayer instead of their own personal greed you wouldnt be in this position with all these foreclosures and under valued housing. politicians care only about the money.