What Builders Want To Sell Homes

The second largest homebuilder in the U.S., Lennar Corp., announced its fifth quarterly loss in a row today–which unfortunately wasn’t the only the only sign this week that building industry stress is mounting.

Miami-based Lennar has had to cut prices to draw buyers, and as a result, its fiscal second quarter results were low: The company had a net loss of $121 million.

Revenue fell 61 percent. And even though there were some glimmers of hope in Lennar’s report–its cancellation rate fell from 29 percent last year to 22 percent–Lennar’s future looks anything but rosy because new orders declined 45 percent to just 4,396.

"The remainder of 2008 will likely see further deterioration in overall market conditions," Chief Executive Officer Stuart Miller said in a statement.

In California and Nevada, home deliveries dropped 56 percent. The number of homes sold fell 61 percent in Arizona, Colorado and Texas–and by 65 percent in Maryland, Florida, New Jersey and Virginia.

Lennar’s situation is no isolated incident, which was clear at the Pacific Coast Builders Conference in San Francisco this week. The annual show–which drew 35,000 attendees two years ago–saw just 18,000 to 20,000 this year, according to the San Francisco Chronicle.

The lower attendance numbers aren’t exactly a huge surprise–the National Association of Home Builders’ International Builders’ Show in February had just over 92,000 attendees, a decline from last year’s more than 100,000, and building is slow in California–but that’s no vote of confidence for the industry, either.

Which is why the Chronicle article also outlined some of the things builders are calling for in order to salvage the housing market:

  • Builders want a tax credit for buyers to perk up market activity.
  • Builders also want Congress to permanently increase the conforming loan limit–which will expire at the end of 2008–to lower the price of mortgages in high-cost markets like California.
  • And California builders want state legislators to expand the time for builders to finish already-approved projects and to postpone fees so developers can pay them when homes are sold instead of when new home construction projects are approved.

We know the market mood is low: Last year, the National Association of Home Builders/Wells Fargo builder confidence index averaged around 27; in June, it hit 18–the second time the index has reached that low point (the first was in December).

Some changes from the local and federal government could have a huge impact on homebuilders’ business; but do you think the changes the Chronicle mentioned are enough?

Will they be effective? As Bloomberg reported Tuesday, Freddie Mac is likely to purchase a much smaller amount of jumbo loans than had been originally predicted this year; Freddie Mac and Fannie Mae’s involvement in the market has been sort of underwhelming. So will keeping the higher loan limits really make that much of a difference?

And a tax credit be enough to encourage buyers still nervous about the state of the market to buy homes?

What do you think?