MIAMI, Fla. --- Will Lennar---one of the nation's largest corporate home builders---lead Florida---and the rest of the nation---out of the housing collapse before it wrecks the economy? Lennar is dumping land---lots of it---at 40 cents on the dollar.
Late last night Michael Hinman at bizjournals.com/tampabay (Tampa Bay Business Journal) reported that Lennar sold Metro Development Group of Tampa 8,300 home sites---almost 4,000 acres of land in seven Fla. counties. Neither party disclosed the bargain basement terms. And that's not all: On Monday, Michael Corkery at WSJ.com (Wall Street Journal) reported that Lennar and Morgan Stanley Real Estate formed a joint venture---MSR Holding Co.---to which Lennar then sold more than 11,000 home sites in 32 communities nationwide for $525 million---half of the reported net book value of $1.3 billion.
Last year, Lennar took a precharge loss of $500 million for land inventory or land under options to purchase. From July through September of this year Lennar told the SEC it had a homebuilding operating loss of $787.7 million and an overall loss of $513.9 million on revenues of just $2.3 billion. or the same period last year, Lennar reported $206.7 million profit on revenues of $3.9 billion---that's a 44 percent drop. But this year's strategy may be even more effective.
According to investor analyst Reggie Middleton at SeekingAlpha.com, Lennar's new deal with Morgan Stanley "bought...an extra year before bankruptcy." But some of us watching the florida housing market closely think Lennar may be leading the way out of the housing morass. Corporate home builders---Lennar included---played a major role in Florida's housing bubble and subsequent collapse. Their co-conspirators included the U.S. Federal Reserve Board and U.S. lenders, who spread it around to greedy speculators, equally greedy land owners, contemptible Florida legislators, corrupt local housing officials and just plain stupid local elected officials who pillaged the Florida economy. And over-reaching, under-thinking home buyers were willing pot-stirrers. Everyone got in on the action, including, just as it all peaked, Microsoft's Bill Gates (heh heh).
Well, almost everyone. Most working families who don't already own a home can't afford to buy one in Florida, and as the James Thorner at UnRealEstate blog (St. Petersburg Times) reports, that has even the Florida Chamber Foundation grumbling:
Median home prices have surged 60 percent statewide since 2003, with even larger increases in key markets such as Miami. The median home now costs 6.4 times the average annual salary in the State, compared to a 4.6 ratio in 2003. Housing in Florida is now less affordable than it is nationally and increasingly out of reach for essential services workers and other middle-income earners in the State.
Our orgy of economic expansion has left us with an artificially inflated real estate market so severe that most Floridians today can't afford to buy their own home at market price. Worse, no one else can either, so employers---schools, hospitals and police agencies, not to mention tech companies---are having a tough time recruiting and retaining workers.
For the anti-growth crowd, that's a perfect storm. And there are plenty of signs Florida's perpetual growth is slowing.
Slower growth might be a good thing. But our 'perfect storm' will leave hundreds of thousands of working families exposed to the elements. That can't be good. So what's the answer?
To paraphrase James Carville, 'It's the affordability, stupid.' Wages and income aren't going to keep pace with housing's artificial inflation. If we're to see sanity restored, values have to come down. That's going to hurt a lot of people, especially those who bought homes over the past three years. It's also going to hurt most of those corporate home builders.
It's in that regard that Lennar may be leading us out of the housing catastrophe. Lennar's bargain basement land sales are flooding the market with home sites. Substantially lower-priced home sites. And that has an impact on the rest of the market.
When the price of home sites drops to the $15,000-$30,000 range, we'll see more housing priced in the $150's. No, that's still not 'affordable' to low income families without assistance, but it's a lot closer to 'affordable' than we've seen in a decade. Now if we could just get the Fed, U.S. lenders, speculators, and especially Fla. legislators, local elected officials and local housing authorities to make similarly radical assessments of their strategies, we might could solve this affordable housing crisis after all.
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