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Lennar, KB Home and the Rest of the Builders

Written By Brian Hicks

Posted March 28, 2008





The builders may have bounced, but that doesn’t mean that is time to buy them either–not by a long shot.

In fact, here’s what two of the nation’s biggest homebuilders had to say this week as their losses mounted.

First Lennar.

They lost $0.56 a share in the first quarter as revenues plunged 62%.

In their press release, Stuart Miller, President and Chief Executive Officer of Lennar Corporation, said:

“Market conditions have remained challenged and continued to deteriorate throughout our first quarter of 2008. The housing industry continues to be impacted by an unfavorable supply and demand relationship, which restricts the volume of new home sales and, concurrently, depresses home prices in most markets across the country.

“Home inventories have been expanding due to the high number of foreclosures, negotiated ‘short sales,’ and stretched homeowners looking to sell homes they can no longer afford. While sales are occurring and clearing prices are being reached, the pace of overall housing inventory growth is exceeding absorption at the current time.”

“Concurrently, lower consumer confidence has quieted demand among prospective homebuyers and deterred them from a buying decision, while contraction in the lending markets has reduced the availability of credit for those prospective homebuyers that do wish to buy a home.”

(emphasis mine)

Then there were the comments from KB Home CEO Jeffrey Mezger.

Earlier today he said:

“Our industry continues to confront a growing oversupply of new and resale homes, tight mortgage lending conditions and a highly competitive pricing environment. These conditions drove down sale prices and further compressed margins in the first quarter of 2008, prompting us to recognize additional impairment charges and abandon certain land option contracts that no longer made financial sense. Until prices stabilize and consumer confidence returns, we believe inventory levels will remain significantly out of balance with demand. We do not anticipate meaningful improvement in these conditions in the near term, as it is likely to take some time for the market to absorb the current excess housing supply and for consumer confidence to improve.

(emphasis mine)

Mezger’s company meanwhile, lost $ 3.42 a share in the first quarter as sales at his company’s dropped by 43%.

So I ask you. Are these companies anywhere near bottom?

Or should they be left on the “value rack” where they belong?

The answer seems pretty simple to me.