Troubled home builders turn to layoffs
Lennar Corp. became the latest to downsize, revealing Tuesday that it has slashed 35 percent its work force amid the national mortgage crisis. The latest cuts follow similar moves by other big builders. Pulte Homes Inc. cut 1,400 full-time jobs, or 10 percent of its work force, last year. Centex Corp. also slashed 10 percent of its salaried work force in 2006 to around 6,400. A tightening credit market, rising foreclosures and the sales slowdown have boosted housing inventory while forcing painful markdowns that have hurt housing companies' bottom lines.
Troubled home builders turn to layoffs
BusinessWeek New York
Bloated home builders are desperate to unload houses. And employees.
Lennar Corp. became the latest to downsize, revealing Tuesday that it has slashed 35 percent its work force amid the national mortgage crisis.
"We expect more to come," said Joe Snider, a credit analyst at Moody's Investors Service. "All of the home builders need to cut back on their employee expenses to have a hope of making any kind of money during this downturn."
Lennar hasn't been able to cut sales, general and administrative expenses sufficiently to offset the drop in margins, he said, "in part, because employee costs haven't dropped as quickly as revenue." Lennar indicated that more layoffs are in the pipeline, but didn't give specific numbers. At the end of December, the company said it employed 12,605 workers, with 9,018 involved in home-building operations and 3,587 in the company's financial-services operations, according to Lennar's annual report.
The latest cuts follow similar moves by other big builders. Pulte Homes Inc. cut 1,400 full-time jobs, or 10 percent of its work force, last year. Centex Corp. also slashed 10 percent of its salaried work force in 2006 to around 6,400.
Given the massive reduction in construction, the layoffs have been "surprisingly small," possibly because home builders usually hire independent subcontractors to build homes, said Dave Seiders, chief economist for the National Association of Home Builders.
Comparatively, home builders have focused on division management, corporate overhead and the consolidation of divisions when cutting labor expenses, experts say. The cuts have been across the board, including accountants, superintendents and construction managers.
The layoffs follow a boom when home building was an engine in the U.S. economy. The industry added 518,000 jobs from January 2003 to February 2006, when employment hit its peak, according to Moody's Economy.com, an economic consulting firm that is a unit of Moody's Corp. . Since the peak through the end of August, 142,500 have been lost, with the deepest layoffs occurring among construction workers.
The home-building industry has been hammered by fallout from the subprime-mortgage credit meltdown over the summer. U.S. housing starts fell 2.6 percent in August and 6.9 percent in July. Sales of single-family homes dropped 3.9 percent in July. A tightening credit market, rising foreclosures and the sales slowdown have boosted housing inventory while forcing painful markdowns that have hurt housing companies' bottom lines.
Meanwhile, demand for previously owned homes tumbled 4.3 percent in August to the lowest level in five years as mortgage market woes crimp sales, the National Association of Realtors reported Tuesday.
Displaced workers are finding work in commercial real estate, which appears to remain fairly strong, as well as in the remodeling sector, said Brenda Talbert, executive vice president of Florida-based Collier Building Industry Association, a National Association of Home Builders charter.
Robert Curran, an analyst at Fitch Ratings, said more layoffs may be announced after the fourth quarter, when production is typically heavy and workers are needed.