Friday, November 05, 2004

Lennar delays delivery of homes, citing soft market, hurricanes


A recent softness in the housing market in Southern California and Las Vegas led home-building giant Lennar Corp. to delay the projected delivery of 600 homes it had hoped to sell this year into the first quarter of 2005.

The company, which has several projects under way in San Diego County, added that the hurricanes in Florida also contributed to the delay in the delivery of the homes.

"Southern California has presented to us a little bit of a softer face more recently," Lennar chief executive Stuart Miller said in a conference call yesterday. "Whether that's a trend, I've consistently said one month in a row does not define a trend yet. We'll have to see."

While Southern California's housing market has experienced a rise in the number of homes for sale in the past few months, the number of home sales overall has remained solid, industry experts say.

So Lennar's announcement came as a surprise to some local housing experts.

"I haven't heard anything like that in San Diego," said Russ Valone of industry research firm MarketPointe Realty Advisors.

Valone said demand has dropped from the frenzied pace seen this spring and early summer. But the number of sales today remains relatively strong when compared with those from the past couple of years.

In San Diego County, for example, new-home sales in September totaled 1,411, compared with 1,233 for the same period last year, according to La Jolla-based DataQuick Information Systems.

"If you're talking about the third quarter compared with the first quarter, then yes, the market has slowed," Valone said. "But if you're comparing the third quarter with the third quarter of 2003, then no, it hasn't."

Local home sales peaked this year at 6,208 in June. In September they totaled 5,177, according to DataQuick.

Experts attribute the drop to seasonal swings. But Peter Dennehy, a market researcher with the San Diego office of Hanley Wood, said the region's soaring housing prices have taken some of the steam out of sales.

"There's a lot of demand for housing," Dennehy said. "The regional economy is still very good, but the price points have gotten to a level where buyers are resistant."

The median price of all homes sold in San Diego hit $480,000 in September, a 23 percent gain from the same period last year, according to DataQuick.

But market observers say San Diegans are taking longer to buy, bargaining harder on price and delaying purchases, hoping for price reductions among an ever-growing inventory of unsold homes.

Dennehy said the slowdown is particularly noticeable in homes costing more than $1.5 million.

"The underlying demand is pretty good, but our affordability rates are as low as they've been in well over a decade," he said. "For whatever reason, consumers are stepping back from paying the peak prices you saw three or four months ago."

Lennar owns Greystone Homes, which is building Village Square at San Elijo Hills in San Marcos, Aurora at Riveria Del Sol in San Diego, Hidden Meadows Ranch in Escondido, and Willow Bend and Alder Lane in Chula Vista. It also is developing Bressi Ranch in Carlsbad, which will feature 623 homes.

While the company has projects in Orange and Los Angeles counties as well, its major emphasis in Southern California is in the Inland Empire. Lennar and its various divisions have more than 25 developments under way in the Riverside County region.

Efforts to reach Lennar's local office were unsuccessful. But Miller, the Florida-based company's chief executive, said housing fundamentals remain solid, despite problems caused by the hurricanes in Florida and softening conditions in Las Vegas and Southern California.

Miller said he believes the investment community is preoccupied with a "bubble mentality" and is overreacting every time the industry sees fluctuations in individual markets.

Still, Raymond James analyst Paul Puryear expressed concerns about the softness in Las Vegas and Southern California.

"Slowdowns in Southern California and Las Vegas will hit home builders extremely hard, as many rely on these markets for a large portion of their total earnings, given the much-higher-than-average margins being generated in these markets," Puryear said in a research note.

He worries that the Las Vegas softness may indicate that problems that recently hit rival builder Pulte Homes Inc. recently may not have been "company-specific."

"Given that the company cited softer market conditions in this market as one of the reasons for their expected lower closing volume, we suspect that a sharp increase in cancellations may be a factor," he said.

Pulte recently said it would cut prices at its new-home developments in Las Vegas to stimulate sales.

Smith Barney analyst Stephen Kim, taking a more positive stance, said he believes the delivery delays will simply give the first quarter of 2005 an extra boost.


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