June 26 (Bloomberg) -- Lennar Corp., the largest U.S. homebuilder, reported an unexpected second-quarter loss and forecast another in the third quarter as the housing market deteriorates.

The net loss was $244.2 million, or $1.55 a share, in the three months ended May 31, compared with net income of $324.7 million, or $2, a year earlier, Miami-based Lennar said today in a statement. Revenue tumbled 37 percent to $2.88 billion, the biggest drop in at least 10 years.

Chief Executive Officer Stuart Miller said he sees no sign of a housing recovery and the Commerce Department reported that purchases of new homes in the U.S. dropped in May. Rising defaults among subprime borrowers and mortgage rates close to an 11-month high are hampering sales even as builders cut prices.

``Market conditions have eroded so much over the past six months we are now focused on limiting the loss this year,'' Miller said on a conference call. ``The supply of homes available for purchase has continued to climb while at the same time demand has been sharply reduced.''

Lennar today forecast a third quarter loss and said the average sales price fell 7.5 percent to $298,000. Sales incentives rose 77 percent as the company offered $43,700 per home in extras in the second quarter, compared with $24,700 a year earlier.

The plunge in revenue resulted from a 29 percent drop in the number of homes delivered in the quarter to 8,940, Lennar said.

Orders Fall

Lennar was projected to report a second quarter profit of 7 cents a share, excluding some items, according to the average estimate of analysts surveyed by Bloomberg.

Shares of Lennar fell $1.20, or 3.1 percent, to $37.55 at 4:01 p.m. in New York Stock Exchange composite trading. They're down 28 percent this year, compared with a 26 percent decline for a Standard & Poor's measure of 16 homebuilders.

New orders in the quarter slumped 31 percent to 8,056, with the biggest decline in Lennar's central and western regions. Orders plunged 46 percent in the company's western region of California and Nevada. Orders tumbled 41 percent in its central region of Arizona, Colorado and Texas.

Land Sales Losses

Losses on land sales totaled $108.8 million in the second quarter, compared with a profit of $41.1 million a year earlier. The value of the company's backlog, or homes under contract and not yet sold, fell 56 percent to $2.8 billion. Lennar's cancellation rate was 29 percent.

The company's per-share loss includes a charge of $1.33 to write off land option deposits and the value of property.

Lennar's gross margin excluding some items was 13.6 percent in the quarter, compared with 23.7 percent in the year-earlier period, as incentives cut profit, Lennar said.

``I think it's hard to find too many good things in this report,'' said Peter Schofield, a money manager at Exton, Pennsylvania-based Knott Capital Management.

The perceived risk of owning Lennar's bonds rose to the highest in almost two months. Credit-default swaps based on $10 million of its bonds jumped $6,000 to $113,500, according to composite prices from CMA Datavision. An increase in the five-year contracts, used to speculate on the company's ability to repay its debt, signals deterioration in the perception of credit quality.

Concern about a protracted slump in housing was reinforced today by two reports today that showed prices and sales are falling.

Home Sales Slide

New home sales fell 1.6 percent to an annual pace of 915,000 last month from a revised 930,000 rate the prior month that was lower than previously estimated, the Commerce Department said in Washington. The supply of unsold homes at the current sales pace rose.

Home values in 20 U.S. metropolitan areas fell the most in at least six years, weakened by a record supply of properties for sale, according to a report today by S&P/Case-Shiller.

Values declined 2.1 percent in April from the same month a year earlier. It was the fourth straight drop in the group's index, which started in 2001.

The National Association of Realtors said yesterday sales of previously owned houses fell in May to the lowest level in almost four years. Purchases slipped 0.3 percent to an annual rate of 5.99 million and the supply of unsold houses jumped to a record.

No `Bottom'

While some analysts and Wall Street strategists say the housing market has hit bottom, builders don't agree, said Schofield.

``When you talk to the builders, they aren't saying that, and if there was any group that would want to tell us as soon as they're seeing things get better it would be the builders themselves,'' said Schofield.

Mortgage rates are rising with the average rate for a 30-year mortgage at 6.60 percent, according to the Mortgage Bankers Association. Rates are at levels not seen since July 2006.

The median U.S. home price probably will fall this year for the first time since the Great Depression in the 1930s, according to Lawrence Yun, a National Association of Realtors economist.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net.

Last Updated: June 26, 2007 16:15 EDT