While some areas of the country start to feel like their feet are firmly sitting on the bottom of this market, there are segments of the housing market that continue to get hit hard. We are not just talking about little mom and pop players here. Some of the biggest names in new home construction are taking hard hits that some fear could cause some of these familiar names to fall by the wayside.
First up is Lennar homes. As reported by the Mercury News on June 26th, Lennar posted a 61% drop in revenue. What is worse is that these folks are expected the market for new homes to continue its downward trend at least to the end of this year.
Lennar is a publicly traded Miami based company. So when a company like this goes down, it also takes down vast numbers of investors.
Lennar has had to write off $5,400,000 in losses on land sales which includes $2,100,000 in land sale losses. They also took a hit in options on property they now do not intend to buy to the tune of $6,600,000.
As for overall revenue, Lennars total revenue dropped from $2.8 billion to $1.1 billion.
Then there is KB homes. KB is one of the nations largest home builders. Based in Los Angeles, KB has had to report a larger second quarter loss which represented a 55% drop in revenue. They are also having to lower the value of unsold homes and take the same kind of losses as Lennar by not exercising options on land.
KB is another publicly traded company that has seen a loss of $3.30 per share for the three months ending May 31. The loss last year over the same period was $1,93 per share.
What is worse for these new home manufacturers is that even when the market does start to recover, as it seems to be doing in some key areas, the benefits of that shift will not immediately lift their sales.
Part of this is their own fault. Such a large number of homes have been built over the last few years tha few buyers are motivated to purchase a brand new home when ones that are just a few years old are plentiful. At least that is what I am seeing in my area.
Let me give you an example. As is true with most devlopments, homes are often built in phases. Not long ago, I was holding an open house in a home from the first phase. I found myself seeing buyer after buyer who had just come from the newest open model homes in the new phase and wanted to reap the benefits of buying a home from the earlier phase with the same basic layout. With the market as it is now, there is simply too much distance between an existing home price and a new home price for buyers to be drawn into the new homes. In many cases, in order for new home builders to compete with what these homes from earlier phases are selling for, they would have to sell at a loss.
There is more to that is pushing buyers away from the new home construction. For too long, builders were focusing on how to cram the largest amount of home onto the smallest lot. We are at the tail end of the “Decade Of The McMansion”. Fewer and fewer buyers are responding to this type of new home. Builders can no longer survive on a “build anything and they will buy it” proposition. When demand is this low for housing, those that do buy want more than an 8 foot strip of backyard or a cookie cutter with few if any distinguishing characteristics from any other house on the street.
I mean really, how many two story entry arches did you think you could build before people got tired of it?
So what I am seeing is buyers, who when given the ultimate in choices are not moving toward the high density developments but want a little space around their home. They want some tree lined streets, some parks. When they find these places, it is rarely a new home that fit the bill.
Builders need to wise up and realize we are no longer in a time when buyers “Have” to buy what they build. When they continue to build a home as if it was 2002, they deserve what they get.
Comments(0)