Real Estate 02 Jan 2007 10:40 pm

Lennar Posts Loss

by Sean Hackbarth

House on fire

Lennar (LEN), the big home builder announced a fourth quarter loss “after it wrote down property investments and relinquished part of its stake in a company that controls 15,000 acres in southern California.” Barry Ritholtz wonders aloud, “You call this a bottom?”

Mike Shedlock tells us Lennar’s news is quite different from Toll Brothers’ rosy view of the housing market, and “Lennar could not even meet its previously lowered guidance of $1.00-$1.30.”

John Polomny wonders “if this is still the bottom as the CNBC shills are preaching.”

The housing market will depend on what the Fed does with interest rates. If somehow the economy chugs along even with weak real estate and Ben Bernanke has to raise interest rates then we could really see pain from home builders.

That’s not what the always cleaver contrarian James Grant thinks. He finds some scary words from Gary Gordon, a member of the investment committee of Annaly Mortgage Management:

Falling house prices in isolation would constitute no grave peril. A housing-induced downturn in job growth is what would cause a bear’s pulse to race. Gordon insists it’s coming, because the formerly potent stimulus of above-trend borrowing growth is about to be removed. Consider, he notes: “Americans pulled out nearly $500 billion of equity in their homes last year in order to buy other stuff. That number shot up from about $100 billion in 2001.” The source of this borrowing? Why, the 12%–or $2 trillion–bump-up in the appraised value of the 2005 U.S. housing stock, double the 2002 increase. Reduce or reverse this appreciation and you stymie the borrowing boom.

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