Housing Has Bottomed? Talk To Lennar
The housing sales data - new and used - for November suggested to some that the residential real estate sector, after having been in a freefall, was stabilizing. Well, the chief executive of Lennar Corp., a nationwide home builder, was on the tape today disputing that notion. According to Lennar CEO Stuart Miller, "Market conditions continued to weaken throughout the fourth quarter, and we have not yet seen tangible evidence of a market recovery." While other builders are experiencing double-digit declines in new orders, Lennar was able to manage its quarterending November 30 decline to only 6%. How? By aggressively cutting prices. There is widespread anecdotal evidence that builders are cutting prices and/or literally throwing in the upgraded kitchen sink to clear out inventories, yet the "official" median price of a new home sold in November was reported to have been up. The sales data pertaining to new home sales typically are revised significantly and are now even more suspect due to the high rate of contract cancellations, which are never accounted for in the data. If the "official" sales data are suspect, would not the price data be too?
Speaking of clearing inventories, builders continue to see their inventories of completed homes increase, both in absolute terms and relative to their total inventories (see Chart 1). Historically, until the relative inventories of completed homes begin to decline, the starts of new homes continue to decline (see Chart 2). The housing recession won't be over until the home builders start to sing rather than sob.