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People Reject Lennar Home Subdivisions
Sunday, 26 July 2009

Lennar Signals Fleeting Builder Rally as Buyers Flee
People are the only thing missing. While construction of the 43-acre real estate project by Lennar Corp., the third- biggest U.S. homebuilder, is almost finished, a message at the information center says some homes in the development are expected to start selling early next year.
The largest homebuilders are mothballing communities across the U.S., signaling they have little confidence that a market rebound is imminent. Builder shares have rallied 76 percent from the lows in November. They may fall more than 20 percent in the next four months unless home prices and property writedowns stabilize, said Anna Torma, a former Merrill Lynch & Co. analyst who tracks the industry at Soleil Securities Corp. in New York.

Lennar Signals Fleeting Builder Rally as Buyers Flee
By Brian Louis and Daniel Taub
July 24 (Bloomberg) -- Townhouses and loft-style condominiums overlook manicured green lawns, flower-lined footpaths and gurgling stone fountains at the Central Park West development in Irvine, California. Just a short walk away there’s a basketball court, a junior Olympic pool and a park.

People are the only thing missing. While construction of the 43-acre real estate project by Lennar Corp., the third- biggest U.S. homebuilder, is almost finished, a message at the information center says some homes in the development are expected to start selling early next year.

The largest homebuilders are mothballing communities across the U.S., signaling they have little confidence that a market rebound is imminent. Builder shares have rallied 76 percent from the lows in November. They may fall more than 20 percent in the next four months unless home prices and property writedowns stabilize, said Anna Torma, a former Merrill Lynch & Co. analyst who tracks the industry at Soleil Securities Corp. in New York.

“Until we see job losses abate and foreclosures begin to decline, rather than increase as we expect, there is unlikely to be a catalyst for the builders,” Torma said. “It’s going to continue to be a challenging environment.”

The Standard & Poor’s index of home construction companies rose less than 1 percent today, after falling earlier as much 3.2 percent. Lennar fell 1.3 percent to $11.11 in New York Stock Exchange composite trading and Centex Corp. rose 5 cents to $9.43.

Brakes in Place

Centex, the Dallas-based homebuilder being bought by Pulte Homes Inc. for $1.3 billion, stopped construction last year at its Morningside development in Fort Pierce, Florida. It has sold 135 homes starting at $185,000 and won’t start building in the project until demand recovers, said David Webster, a company spokesman.

Toll Brothers Inc., the largest U.S. luxury homebuilder, has 33 projects on hold. Hovnanian Enterprises Inc., New Jersey’s largest builder, stopped development on 12 initiatives in the second quarter. The Red Bank, New Jersey-based company had 76 shelved developments at the end of April, according to a regulatory filing. Of Hovnanian’s 9,799 mothballed lots, more than 6,100 are in California.

More than 18.7 million homes stood empty in the U.S. during the second quarter as the steepest recession in 50 years sapped demand for real estate and banks seized properties from delinquent borrowers.

Vacant Homes

The number of vacant properties, including foreclosures, residences for sale and vacation homes, was little changed from 18.6 million a year earlier, the U.S. Census Bureau said in a report today. The quarterly homeownership rate was 67.3 percent, seasonally adjusted.

U.S. homebuilders may record $10 billion more of writedowns this year for property, joint ventures and expenses to walk away from land options, according a May 21 report from analysts at Deutsche Bank AG.

A Standard & Poor’s measure of homebuilders fell to the lowest since 2000 in November. The shares then started to rally on speculation a federal tax credit, low mortgage rates and increased affordability would boost demand.

The index rose 91 percent from the November lows to May 4. It’s 7.8 percent off that high as the number of homes in foreclosure climbs and the federal tax credit is scheduled to expire later this year. First-time homebuyers have to complete the purchase of a home before Dec. 1 to qualify for the credit.

‘Dark Clouds’

“There are some dark clouds on the horizon,” said David Goldberg, an analyst at UBS AG in New York. “There’s a real chance things are going to get worse and the back half of the year could be worse than the first half.”

Mortgage rates have risen to 5.2 percent from a low of 4.78 percent in April, according to data from Freddie Mac, the McLean, Virginia-based mortgage buyer.

Rising foreclosures also are forcing price cuts by builders. The median price for a new home in the U.S. fell 3.4 percent to $221,600 in May, according to the Commerce Department. Home values probably will decline in more than half of the largest U.S. cities through the first quarter of 2011, mortgage insurer PMI Group Inc. of Walnut Creek, California, said on July 7.

Chris Serra, senior equity analyst at Thrivent Asset Management LLC in Appleton, Wisconsin, said all the pessimism about builders may be overdone given that affordability is at record levels and consumers are buying foreclosed properties to clear inventory.

Drop Overdone?

Thrivent Asset Management owned shares of several homebuilders, including almost 300,000 shares of Los Angeles- based KB Home at the end of April and 1.7 million shares of Horsham, Pennsylvania-based Toll at the end of March, according to data compiled by Bloomberg. Thrivent Asset Management is a unit of Thrivent Financial for Lutherans, which has $61 billion in assets under management.

“It’s an interesting time to start dabbling,” he said. “We’re on the path to a gradual recovery here. I don’t see it getting terribly worse.”

Central Park West

Homebuilders are trying to gauge demand. In some cases, they are opening communities and closing others. They may also open developments in stages to meet customer orders. Toll plans to be careful about reopening developments, Chief Financial Officer Joel Rassman said. He declined to provide the locations.

“The fact that we had to close them was an indication of the economy in September, October, November, December, January, and the decreasing economy before then,” Rassman said in a telephone interview. “We have opened some communities in recent months and we’ll look to open more communities that have been closed, and if the economy continues to bounce around a little for a while, we’ll be careful in opening communities.”

Central Park West is a planned community of 1,380 homes that takes its name from New York City. The development in California’s Orange County also has a luxury high-rise project, called Astoria, with units for sale. The Astoria is being developed by Intergulf Development Group and Lennar.

The Central Park West community crisscrossed with streets named Waldorf and Rockefeller, sits largely completed, down to the chaise lounges by the pool, pet-waste bag dispenser at the park entrance, and gas grills in the outdoor cooking area. One can spend a half hour midday walking around the development without seeing another person.

Lennar declined to comment on whether anyone lives at Central Park West.

“We have had a longstanding policy of not attempting to keep the public informed of the details of any individual community beyond the information provided in our quarterly conference calls, or published on our Web site,” said Lennar spokesman Marshall Ames in an e-mail.

To contact the reporters on this story: Brian Louis in Chicago at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ; Daniel Taub in Los Angeles at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

http://www.bloomberg.com/apps/news?pid=20603037&sid=a3yc2pD4CFUs

 
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