The story of Lennar Homes' third quarter was one of downs, and, for the most part, that was a good thing.
Loss per share, inventory, SGA expenses, joint venture exposure, number of lots, and cost of construction were all down from the previous quarter as well as year-over-year.
Of course there were some not-unexpected down numbers--deliveries and new orders were down year-over-year, 50% and 42% respectively. Backlog dollar value saw a drop as well, down 53%.
But overall, CEO Stuart Miller said he was pleased with the company's efforts to maintain and improve business despite the market that he sees as showing no improvement. "In this market, we realize some things are not under our control," he said. "The things we can control, we have been all over them."
It was the things out of Lennar's control that Miller waxed loquacious about during the company's Sept. 23 earnings conference call--specifically, the government's economic stimulus package passed over the summer, which he said hurt more than it helped.
"I would argue that the bill was net-net anti-stimulus," said Miller. The government's interest-free loan program wasn't very helpful, he added, noting that both the elimination of third-party down payment assistance programs on Oct. 1 and the increase in the required down payment for FHA loans will hurt as well.
"It took purchasers out of the market when we least could afford it," he said.
Lennar's June and July sales figures were "dismal," according to Miller, but the promotions to get people into homes before the third-party down payment assistance program disappears next week did stimulate some extra business in August.
"As we dissected the flow of people coming in...we came to realize that a number of the people didn't need the program, but they used the program because it was a good deal," Miller said. Still, he estimated its loss will take away between 10% and 15% of Lennar's buying market.
"That program should be reinstated," he said. "We in the industry understand that it is probably better to not have it than to have it in the long term, but today is not the day to cut off the blood supply to the patient who is on the operating table."
Miller said true economic help would be to stop the freefall of home prices. "In order to repair our failing financial system, we have to stop the decline," he said.
When prices stabilize, confidence will return, the home market will begin to rebound, and so will the overall economy.
"We are not projecting a material improvement for some time to come," he said. "This should not be confused with abject pessimism....Although it is difficult to find reason to be optimistic....I believe this market will rebound. It will have to rebound in order to bring this economy back to its feet."
Miller said he thinks there has been enough negative news lately to spur the government into action to try to stabilize things. But he's not sure what form that action will take.
"Just about everything is on the table, and there is no way to handicap [the odds of whether down payment assistance will be reinstated]."
Regarding a potential bail-out plan, "I think it is still taking shape, and I think any comment on it is premature," Miller said. "It certainly seems that we are going to have something akin to an RTC program, almost a throwback to the early '90s."
Yet Miller thinks the current market is worse than in the early 1990s. "The financial stress is far more complex than it was in the early '90s," he said. "I think we are going to have to sit back and watch...I feel pretty strongly that if they don't get housing prices to stop falling...we are just going to be chasing the market downward, and each financial fix will be frustrated."
Miller answered a question about whether the government bailout program might include land sales by emphasizing that there is a lot of private equity capital lined up along the sidelines ready to buy assets, and much of the holders of the capital will need builder expertise to buy, develop, build houses on, and sell.
"That capital is going to have to find machines, mainly management teams, that are able to convert undeveloped land assets into developed home sites," he said. "At the end of the day, where we are headed....our primary business will be to buy finished home sites from a land machine that is able to develop land."
Asked whether that puts Lennar in a more conservative position in the future than it has in the past, Miller responded, "If you look at the early '90s and the way we emerged from the distressed market, we did exactly what I just described, combined operating machine with capital resources that are available. We actually created an entire company, it became LNR, that came out of that distress."
But is Lennar poised to sell any more of its land by the end of its Nov. 30 fiscal year to capture more tax carry backs as it did in the last quarter of 2007?
"We don't anticipate a sale of that magnitude," Miller replied.