Lennar Finding Florida Market Not So Sunny

In red-hot housing markets around the country, most homebuilders have enacted strict anti-flipping clauses to deter speculators from buying in their new communities. Now, Lennar(LEN - Cramer's Take - Stockpickr), one of the country's largest builders, has quietly taken the unusual move of dropping the restrictions at several of its South Florida developments.

Local brokers say the decision shows just how much Lennar needs the flippers to keep order numbers up at certain communities.

Over the past year, speculators have been portrayed as the cockroaches of the housing industry. These pesky investors who buy homes with the intent of flipping them for a quick profit have been blamed for much of the supposedly irrational pricing in markets such as Miami, Phoenix and Las Vegas.

Much of the speculative activity takes place in the condo market, where investors used risky interest-only mortgages to buy condos before they were constructed.

In the greater Palm Beach, Fla., market, Lennar recently dropped the stringent anti-flipping clauses at several of its townhome communities: Martins Crossing and Whitemarsh Reserve in Stuart; Newport Isles, which also offers single-family detached homes, in Port St. Lucie; Cielo, in Jupiter; and Central Park in Boca Raton, according to Lennar's local sales offices.

The clauses, inserted in sales contracts beginning in August, aimed to deter speculators by requiring owners to pay 10% of the resale price to Lennar if they sold the home within a year of purchase.

"When you go from making sales to making no sales, you've got a problem," Mike Morgan, broker-owner of real estate brokerage firm Morgan Florida, says about Lennar's decision for its Palm Beach properties. "With the investor policy, there was no way they were going to make their next quarter numbers."

The Palm Beach market, like the rest of South Florida, has seen booming housing prices over the past few years. Port St. Lucie has been one of the fastest-growing cities in America, according to Census Bureau data. But lately, the market has slowed down a bit, local brokers say. Morgan says Lennar recently boosted its commission to outside brokers like himself back to 3%, after dropping it to 2% earlier this year. The company has also been offering more incentives -- such as $15,000 off certain new homes -- to move product, he says.