Lennar's CEO said there's no end in sight to the housing bust unless the government steps in, as the homebuilder reported a loss and joined the vulture investors.

BY MATTHEW HAGGMAN 

MiamiHerald.com

The housing market is getting worse, not better, the leader of Miami-based Lennar said Thursday as the homebuilding giant announced its second straight year of billion-dollar losses.

Lennar CEO Stuart Miller said home prices are in ''freefall,'' and the only way to break the downward spiral is a federal government stimulus package.

''That bright light at the end of the housing market's dark tunnel will be government action,'' Miller said in a conference call with analysts.

Like other developers, Lennar is trying to navigate an ugly downturn at the root of a broader economic recession, a plunge that has sent Lennar's stock plunging 80 percent in the last two years and put several Florida developers such as WCI Communities into bankruptcy court. Lennar has major operations in Florida and California, the two states hit hardest by the housing downturn.

Lennar's strategy includes hoarding cash -- it had $1.09 billion in reserves as of Nov. 30 -- and establishing a fund aimed at buying distressed residential properties.

The $1.1 billion Lennar lost in its fiscal 2008 is a remarkable reversal of the $1.4 billion in profit Lennar earned in 2005. That year, the height of the housing boom, was the first -- and only -- time the company cracked a billion in profits.

On Thursday, Lennar said revenue in fiscal 2008 dropped by more than half to $4.6 billion. The $1.1 billion in losses -- $7 per share -- was actually an improvement from the $1.9 billion in 2007, but still among its worst years ever. For its fourth quarter, Lennar lost $811 million, or $5.12 a share.

Orders for new Lennar homes dropped 46 percent to 2,563 in the fourth quarter, and the number of homes the company delivered to buyers declined 34 percent to 4,484. The rate at which customers canceled contracts also rose, while the average price of Lennar homes fell from $291,000 a year ago to $262,000 as the company offered discounts.

Company stock responded mildly to Lennar's earnings report, closing down 1.3 percent to $10.12.

Miller said Lennar's primary moves remain generating cash by selling off its inventory of unsold homes, reducing land purchases and building fewer homes.

In the conference call, Miller said Lennar not only had $1.1 billion in reserves -- up from $642 million a year ago -- but it received a $230 million tax refund, further fortifying its cash stash.

''In 2009, cash generation will continue to be our top priority,'' Miller said.

UBS analyst David Goldberg wrote in a note to clients that ''we continue to believe Lennar has the requisite liquidity to withstand the downturn.'' Goldberg rates Lennar's shares ``neutral.''

Meanwhile, Lennar is planning for an eventual upturn by launching a fund aimed at buying distressed residential real estate. Miller said the move was similar to a highly successful effort in the 1980s when, during a previous downturn, Lennar created a real estate investment and finance arm -- which also invested in commercial properties -- it later called LNR.

That firm, based in Miami Beach, was subsequently spun off as a stand-alone public company before being taken private by New York-based investment giant Cerberus Capital Management and entities controlled by Miller.

Jeffrey Krasnoff, LNR's former CEO, is heading up the new fund, called Rialto Capital Management. Miller, who would not provide many details about the new fund, said it will have to substantially raise its own money and will be segregated from Lennar, though it will still benefit shareholders.

A long line of real estate developers and investors have already announced funds to buy everything from raw land and unfinished residential developments to delinquent loans. So far, however, there have not been many deals.

''The reality is that they are highly experienced and the timing is right,'' said Lew Goodkin of Goodkin Consulting in Miami, referring to Lennar. ``I think there will be a real break in distressed properties. Everyone has been waiting for the miracle but it hasn't happened, so I am expecting a break by second quarter.''

But Miller said the big remedy remains an economic stimulus package by the federal government. In the latest quarter, the CEO said, broader economic pressures continued to undermine the housing market ``as rising unemployment, falling home prices, increased foreclosures, tighter credit and volatile equity markets further eroded consumer confidence and depressed home sales.''

He said a fix must stem the flow of foreclosures and keep people in their homes. But he said demand must also be stimulated by measures that shove mortgage rates further downward and push wary buyers back into the market.

Miller expressed hope the incoming Obama administration will push a housing stimulus package, since the problems are clear and the new administration is not saddled with having created the downturn.

''I fundamentally believe that things always look darkest just before the fix,'' Miller said. ``And things are looking adequately dark right now.''