Lennar orders jump as housing market picks up

A Lennar model home is open for customers in a new neighborhood in the Denver suburb of Thornton, Colorado March 29, 2011.

(Reuters) - In another sign the U.S. housing market is stabilizing, Lennar Corp (LEN.N) reported a rise in new orders for a fifth straight quarter, as the homebuilder was able to charge higher prices to buyers looking to take advantage of record-low interest rates.

"They do not want to miss this moment in time," Lennar Chief Executive Officer Stuart Miller said on Wednesday during a second-quarter earnings conference call with analysts. "There's this feeling of not wanting to miss the boat."

The Miami-based builder, the third-largest in the United States by revenue, said orders jumped 40 percent to 4,481 homes. New home orders are a bellwether for builders.

The results provided further evidence of housing market momentum. In his prepared statements, Miller seemed upbeat about the housing market. But with analysts on the earnings call, he was cautious about using the word recovery. Coming on the heels of mounting reports showing rising home sales and prices, Lennar's sales rise did seem to bolster the evidence of the housing market's gathering strength, if not full-blown turn.

Lennar shares closed nearly 5 percent higher on Wednesday on the New York Stock Exchange. They initially surged 7.5 percent.

The Lennar news sent the homebuilding sector on a solid rise. The S&P homebuilding index .GSPHOME was at 3 percent at the close of trading. D.R. Horton Inc (DHI.N) shares closed up 2.3 percent and PulteGroup Inc (PHM.N) closed 1.6 percent higher.

Lennar is benefiting from higher margins, reduced incentives and better pricing in its subdivisions across the country, said Miller. Its starter homes are now going for an average $250,000, up from $245,000 in the same quarter last year.

One of the homebuilder's most pernicious problems, Miller said, remains the mortgage lending environment.

"Consumers recognize the mortgage approval process is extremely difficult and very conservative, and it's difficult to get approved," Miller said. "Demand is constrained by the mortgage qualification process."

Yet net income rose to $452.7 million, or $2.06 per share, for the quarter ended May 31, from $13.8 million, or 7 cents per share, a year earlier.

The spike in net income was mostly due to a tax maneuver. Lennar included a $403 million partial reversal of deferred tax assets, which stemmed from losses incurred during the housing bust. Excluding that, Lennar earned 21 cents per share, still three times the year-earlier profit.

Analysts on average expected Lennar to earn 17 cents per share, on revenue of $885.7 million, according to Thomson Reuters I/B/E/S.

In the past, Lennar has attributed part of its recent success to the "Multi Gen Home" design it introduced at the beginning of the year. After the financial crash, company executives assumed more households would start to combine generations under one roof.

The new design contains a separate, 600-square-foot apartment with its own entrance. This allows Baby Boomers to live with their ailing parents or boomerang children to move home, while still maintaining their own space. The relatives also get the financial benefit of combining living expenses.

"People aren't living on top of each other, they're living next to each other," Lennar Regional Vice President Jeff Roos said. "It's like adjoining hotel rooms where you're just doors away."

The homes, introduced last year on the West Coast and due to be available throughout the United States by the end of this year, have been a hit with home buyers, the company has said in the past. However, Lennar has declined to break out financial details on their sales, other than to say they have higher profit margins and helped Lennar deliver 20 percent more homes this quarter.

LOCAL RECOVERY

New U.S. single-family home sales surged in May to a two-year high and prices rose from a year earlier, further signs the housing market is gaining velocity.

But there are dueling views on the housing market's health.

Some analysts have said the housing market is in a recovery. Others are skittish, saying the housing market remains anemic. They add that further price declines could be in the offing this year.

On Wednesday's earnings call, Miller characterized the housing depression as national, but the recovery as local. In response to one analyst's question, he said: "I'm nervous about saying the word recovery. We'll see how things evolve over the next couple of quarters."

He added that the housing market is "not yet in full recovery. The actual data is still slightly negative in some cases. After a full, seven-year decline, it's rocky and erratic and certainly not broad based."

Lennar reported its earnings just two days after news it struck a $1.7 billion financing deal with China Development Bank to rekindle the Treasure Island and Hunters Point Shipyard developments in San Francisco, according to two people familiar with the matter.

Those projects sit on two of the most prized pieces of real estate in the United States, two former naval bases that are the biggest and last remaining slabs of open space in San Francisco's Bay.

Lennar is using the Chinese money to build what will be the largest urban development project ever in San Francisco and one of the largest in U.S. history.

The company has been working on developing the land for more than a decade.

The new development will span 1,300 acres, include 4.9 million feet of commercial space, 100,000 square feet of office space, a five-star, 470-room hotel, 20,000 homes and house 50,000 people, all of whom will live along the waterfront of San Francisco's Bay.

The housing developments will be of the Jane Jacobs variety, with housing that ranges from the affordable to the ultra-high end and communities where people can live, do errands and send kids to school - all without needing a car.

"We are very excited about the fact that, first of all, the market is recovering and also the fact that we are going to be moving forward on construction and infrastructure," says Emile Haddad, Chief Executive Officer of FivePoint Communities, Lennar's managing partner on the deal.

(Reporting by Michelle Conlin; editing by Alwyn Scott, Jan Paschal and Andre Grenon)