Builders Suffer due to Mortgage Crisis
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Builders Impacted by Mortgage Crisis
Summary
Last month, existing home sales declined significantly, with many homebuilders experiencing record-low quarterly earnings. The ongoing subprime mortgage crisis is believed to be the main factor behind the housing sector's distress.
Article
In recent weeks, the housing market has faced significant challenges. Existing home sales fell 4.3% in August compared to July, hitting a five-year low. The annual sales rate dropped from 5.75 million in July to 5.50 million, representing a 13% decline over the past year.
The Lennar Corporation, a prominent homebuilder, reported its largest quarterly loss ever, citing an $848 million write-down in real estate values. The company faced a net loss of $513.9 million, or $3.25 per share, compared to a profit of $206.7 million, or $1.30 per share, from the previous year. Lennar’s shares fell 4% in midday trading, settling at $23.20.
Adding to the economic gloom, the Conference Board reported a decrease in consumer confidence. Their index dropped to 99.8 in September from 105.6 in August, a sharper fall than anticipated, marking a two-year low. Analysts attribute this decline to a weak job market and stagnant wages, which may further impact consumer spending and job creation in the coming months.
According to Joshua Shapiro, Chief Economist at a New York research firm, the housing sector's downturn directly influences consumer attitudes and spending power.
Lennar experienced a 44% revenue drop in the last quarter and reduced its workforce by 35%. The company has struggled with high inventory levels and credit market disruptions, presenting challenges for builders in recent months. CEO Stuart Miller acknowledged these issues and noted that further staff reductions are expected in the fourth quarter.
Meanwhile, Darlene Williams, Assistant Secretary of US Housing and Urban Development, remains optimistic about the role of subprime mortgages in promoting home ownership. Despite the current credit market crisis, she hopes Congress will pass reforms to expand federal support for mortgages via the Federal Housing Administration.
These developments highlight the profound impact of the mortgage crisis on both homebuilders and the broader housing market.
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