Noteworthy

Phil is right that dumping 11,000 homes…

…previously valued at $1.3B for $525M is a huge deal for people who bought “Lennar” homes recently:

“For example, what happens to homeowners in a Lennar subdivision when their builder suddenly bails out at 40% of what they just paid for their identical home?

“Think of it this way: if you paid $250,000 for your Lennar home, it instantly become worth $150,000.”

I remember earlier this summer hearing an economist with CAR talk about how areas with lots of new home construction were inevitably being hit the hardest because new home builders were much quicker than home owners to reduce price based on market conditions.

Interestingly, it sounds like there could be more of these big deals in the near future:

“But the deal also suggests that bargain hunters on Wall Street might be willing to step in and try to grab some prime properties at a fraction of their previous value. “

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7 responses

  1. Spencer Barron Avatar
    Spencer Barron

    I really wasn’t surprised at the spread between book value and the sale price. I’m sure the book value is inflated. People should ask themselves, “how do I determine the value of raw land?” The answer is, it depends on what I can build. By retaining a 20% interest and then getting paid to manage, this sounds like a savvy deal for Lennar.

    Homeowners shouldn’t read too much into this as far as how it affects their home values. It’s not going to translate into a 60% loss. It just makes for a sensational headline.

    My guess is the builders won’t leave money on the table. They’ll lower the price to where the homes will sell. Probably slightly more than what currently available existing similar homes are selling for. Shareholders demand profits.

    -Dustin, how do you find time to blog this much? Keep it up. 🙂

    Reply
  2. Dustin Avatar
    Dustin

    Spencer,

    I agree that the estimated price was likely inflated… and that Lennar is probably getting a relatively good deal out of the exchange. (Hence the initial rise in their stock price after the deal was announced).

    Nonetheless, I think it is an excellent example of quickly home builders will move to consolidate losses and get their “homes” back in order. 🙂 I still think that home owners that recently bought in areas with lots of new home construction had better be in it for the long haul, because the short-term doesn’t look good.

    In terms of blogging… I read a lot and have just decided to comment on things as I think of them. I only get “bloggers-block” when I start to consolidate ideas in my head in hope of creating one game-changing post. 4realz is my outlet to think out-loud! 😉

    Reply
  3. mike simonsen Avatar
    mike simonsen

    oops. bad second link.

    Reply
  4. Dustin Avatar
    Dustin

    Whoops! Thanks Mike!

    Reply
  5. Joe Zekas Avatar
    Joe Zekas

    Talk about compounding misinformation.

    What Lennar sold was mostly undeveloped lots.

    This is what happens when you quote from a real estate blog rather than going directly to Lennar’s SEC filings or a credible source for straight information.

    Now people will cite this blog as evidence of what’s happened and compound the confusion even further.

    Reply
  6. Dustin Avatar
    Dustin

    Joe: Give us the real scoop.

    From CNN, I read that they sold 11K “properties”. You’re right that most of those properties are probably undeveloped lots, but I’m not sure what difference that makes. By the time they are at the “lot” level, they’ve gone through zoning and, at least typically, have recently developed homes nearby. Are you saying it is irrelevant that Lennar is selling these lots on the cheap? What misinformation are we compounding?

    Reply
  7. Dropping prices, new construction and the inherent risk in a changing market | Real Central VA

    […] Calculated Risk covered this story as well as Phil’s excellent analysis of a related story (h/t: Dustin) […]

    Reply

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