Thursday, November 15, 2007

Lennar Waiting For Better Times

According to an article in the RealEstateJournal, Lennar Corp. has decided not to sell new homes that are currently under construction. They realize that, should they decide to sell, they will be selling at a loss, and are unwilling “to go below a certain floor”, said Chief Executive Stuart Miller. Hovnanian Enterprises Inc. and Standard Pacific Corp. are still trying to sell, offering discounts and other incentives.

While it is easy to understand the builders’ anxiety over price cuts, I keep wondering whether this will work. Perhaps if they keep cutting prices on homes that are still for sale they could get the inventories moving, but having completed homes sitting vacant means constant expenses. True, they can’t just leave the homes unfinished, but completing them and then waiting for the market to improve doesn’t sound like the best idea ever to me. Luxury builder Toll Brothers is doing something quite different: it refuses to cut prices, even though this may mean few, if any, sales. Something like the “best of both worlds”, - fine, if they can afford it.

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