Lennar (LEN) 2007 Q1 Profit Sharply Drops

Well, it was starting to happen and now it's prevalent: National Homebuilders have lower profits and see no home price stabilization in sight. From Marketwatch, Lennar reported first-quarter net earnings of $68.6 million, or 43 cents a share, for the three months ended Feb. 28, down 73% from the $258.1 million, or $1.58 a share, earned in the year-earlier quarter. Revenue overall dropped to $2.79 billion from $3.24 billion as revenue from home sales fell about 10% to $2.62 billion. Orders were down nearly 30%

In a maverick move and one in which I applaud, Lennar withdrew its previously (read Jan '07) stated target of topping 2006 numbers, and going as far as not issuing new guidance. I applaud this move because with the housing bubble bursting, instability of home prices, unknown land impairments, increased difficulty for buyers to qualify for loans, and increasing inventory, any homebuilder trying to issue numbers would be trying to pin down a moving target.

Math & Methodology of Housing Numbers

Doug Kass' article, The Simple Math of Subprime's Slide:

It is truly remarkable how the slightest provocation (last week's "solid" home-sales headline) had the media and other permabullish types declare that the housing market has finally bottomed (again!) and that the impact on the subslime mess would be contained.

Nicholas Yulico's article, Home-Sales Data Debated:

The Commerce Department reported much-worse-than-expected new-home sales data for February, with sales dropping 3.9% from January and inventories hitting fresh highs.

The news comes after seemingly positive housing data last week. The National Association of Realtors reported Friday that sales of existing homes climbed nearly 4% in February, beating economists' estimates.

My observations later...

Buy a House, Be a Contrarian (Yeah, Right!)

This morning on CNBC, 30 minutes after the Commerce Department reported single-family new home sales were down 3.9% in February versus January and down 18.3% compared to year ago levels, David Michonski (president/CEO of Coldwell Banker Hunt Kennedy) squared off against Dean Baker (Economist and co-director of CEPR) to discuss if now is a good time to buy a house. Could you guess who took which side?

While Dean Baker pointed towards the newly release sales numbers and the general psychology of buyers believing prices could go lower, Michonski was expectedly upbeat about the housing market. If fact, Michonski stated that the median price for a single-family home was up 1.1% in 2006, slightly lower than the historic 4%. He ventured that median prices were slightly down last year, but should return to the the historic 4% in 2007. He further followed the REIC mantra by saying it's hard to be a contrarian and buy a house now, and that now is a good time to buy a house and that a 6-month inventory is a balanced buyer and seller market. Even the host of CNBC asked Michonski if he is doing a disservice to his customers by saying that kind of thinking out there if the face of economic indicators and sales numbers that show housing weakness.

To Dean Baker's credit, he didn't get into a cat fight with Michonski. He pointed out that these are monthly numbers and can only suggest a trend, but he did nail Michonski for the median sale price rising 1.1% in 2006 comment as being disingenuous. Baker has read the tea leaves (indicators/numbers) and is not paid to selling homes as Michonski is.