September 25, 2012, By Eric Kalis
To Stuart Miller, the wishful conjecture about a housing market recovery has finally given way to tangible evidence.
“It’s beginning to be interesting to be a home-builder again,” the Lennar CEO said Monday during a conference call with analysts to discuss the company’s 321 percent increase in quarterly profits Lennar’s performance, coupled with similar recent results from other major U.S. home-builders, is fostering optimism that the industry is recovering and could drive an economic rebound.
Lennar (NYSE: LEN) posted a third-quarter profit of $87.1 million, or 40 cents per share, compared with $20.7 million, or 11 cents per shares, for the same 2011 period.
Analysts surveyed by FactSet expected earnings of 28 cents per share.
The report “is one more piece of evidence that the residential real estate market in South Florida is on the rebound,” said Miami attorney Lewis R. Cohen, who specializes in real estate and banking. “Perceived bargains in the marketplace, coupled with the availability of low interest rates, lead many prospective home buyers to believe that this is the time to buy.”
Lennar said home deliveries climbed 28 percent to 3,655 homes.
New orders rose 44 percent to 4,198 homes.
Miller predicted Monday that Lennar’s third-quarter earnings would be “an excellent stepping stone to strong future performance. The current trend is in fact the beginning of a new cycle for housing. As we look ahead, we are increasingly optimistic that we are seeing real recovery.”
Miller cited several keys to the emerging housing rebound, including home prices and low interest rates that make purchases more affordable, marginal improvements in the availability of financing, declines in unsold inventory, and improving consumer confidence.
But “stabilization and recovery are still uneven throughout the country, even within local markets,” Miller said. “We see pockets growing while the broader market remains weak.”
Lennar’s strong results followed last week’s quarterly report from Los Angeles home-building giant KB Home that it had posted year-over-year increases in profits, net orders and home deliveries during the third quarter.
Another major home-builder, Red Bank, New Jersey-based Hovnanian Enterprises, on Sept. 6 reported third quarter net income of $34.7 million, or 25 cents a share. That represented a major year-over-year rebound from a net loss of $50.9 million, or 47 cents a share, in the third quarter of 2011.
These large builders enjoyed an advantageous cash position during the recession that allowed them to “make significant purchases when people were out of the market,” said Bernie Navarro, president of the Latin Builders Association. He is founder and president of Coral Gables-based private equity mortgage lender Benworth Capital Partners.
Smaller builders are taking a more gradual approach in returning to residential construction, Navarro said.
“People are cautiously building 10 houses, 20 houses” at a time instead of larger developments, he said.
Lennar said revenue improved to $1.1 billion from $820.2 million on a 33 percent increase from home sales. The company also reported a 28 percent gain in home deliveries to 3,655 and a 44 percent rise in new orders to 4,198 homes.
Lennar’s report says more about the health of the region’s real estate market than the company’s overall profits, said real estate attorney Louis Archambault, a partner at Miami-based Pathman Lewis.
“The home-building sector is such a large jobs creator for the economy,” Archambault said. “It’s a great sign that Lennar is showing home-building growth; that we can be happy about. Home-building tends to be a bit more speculative.”
South Florida’s rapid pace of condominium absorption, particularly in Miami’s central business district, where many observers feared a glut of unsold units would linger for up to a decade, has helped strengthen the single family sector, according to Alicia Cervera Lamadrid, managing partner of Miami-based Cervera Real Estate.
Having fewer condos to compete with, and a continually strengthening rental market, is encouraging for home builders sitting on substantial amounts of vacant single-family land and unsold residences, Cervera said.
“First to crash, first to rise,” she said. “The condo recovery has kind of led the way. … It all plays together.”
Miller also said improved rental market conditions — and higher rents — are a boost for single-family sales. Homeowners’ monthly payments now compare “favorably” with rental rates.
Bottom line improvements at Lennar and other major home-builders follow promising news from broader housing market indicators. The Commerce Department last week reported that single-family housing starts in August jumped 5.5 percent to a 535,000-unit annual pace, the highest level since April 2010 when federal tax credits gave buyers heavy incentive to make home purchases. Overall housing starts came in at an annual pace of 750,000 units, which was 15,000 units below estimates, however.
The Commerce Department is scheduled to release the August new home sales figures Wednesday. The national housing reports confirm that “the worst has passed” in the residential sector, Archambault said.
“People are lining themselves up now for the next growth spurt indicator,” he said. “That is financing, of course. The financial markets will dictate how quickly the real estate market is able to rebound and grow.”