June 24 (Bloomberg) -- Lennar Corp.’s home sales are down 20 percent to 25 percent this month compared with a year earlier as the expiration of a government tax credit for buyers saps demand, Chief Executive Officer Stuart Miller said.
“The entire market knew there’d be a slowdown as we came off the tax credit,” Miller said on a conference call with investors today. “It’s just that the reality of it doesn’t feel good.”
Lennar, the third-largest U.S. homebuilder by revenue, reported its second quarterly profit in three years today as cost cuts helped offset a drop in revenue. The Miami-based company said new orders in the fiscal second quarter sank 10 percent after the tax benefit’s expiration at the end of April, causing demand to plunge in May. Sales in June have shown “modest improvement” from last month, Miller said on the call.
The end of the tax credit may hold back a recovery in the U.S. housing market, which has been hurt by weak demand and increasing foreclosures during the recession. New home sales plunged 33 percent in May from April to a record low pace, the Commerce Department reported yesterday. To qualify for the credits -- worth as much as $8,000 -- purchasers must have signed contracts by April 30 and must close the sale by June 30.
Lennar shares fell 17 cents, or 1.2 percent, to $14.57 as of 4:15 p.m. in New York Stock Exchange composite trading. They have plunged 27 percent since April 30, while the Standard & Poor’s Supercomposite Homebuilding Index has lost 25 percent.
Lennar expects to remain profitable for the rest of the year by focusing on improving margins rather than increasing sales, Miller said on the call. The drop in demand after the benefit will be temporary, he said.
Toll Brothers Inc., the biggest U.S. luxury-home builder, said on June 16 that orders were running about 20 percent behind year-earlier levels in the three weeks after its May 26 earnings release.
“Most people are viewing the glass that is half empty right now,” Toll Brothers CEO Douglas Yearley Jr. said at an investors conference sponsored by Deutsche Bank AG in Chicago today. “They are not buying.”
Meritage Homes Corp. expects sales for its quarter ending June 30 to fall about 25 percent below the same period last year, when the Scottsdale, Arizona-based company closed on 890 homes, CEO Steven J. Hilton said at the conference.
Lennar’s decline in volume “will make profitability challenging” in the second half of this year, Daniel Oppenheim, an analyst with Credit Suisse Group AG, wrote in a note to clients today.
Orders in Lennar’s West division, which includes California and Nevada, tumbled 33 percent, the most of any region. Orders in the Houston area fell 25 percent.
“The one metric that makes us pause is the order level,” Stephen East, an analyst with Ticonderoga Securities LLC in New York, said in a note to investors. East, who rates Lennar “buy,” had estimated orders would rise 14 percent in the fiscal second quarter ended May 31.
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