More Land Mines for Builders

Lennar: "Lennar will probably have the biggest write-off this quarter, even bigger than KB's, I guess," says Barron, the JMP Securities analyst. The reason is that the company has written down little to date yet has been aggressively cutting prices to move homes for sale. The company reports fourth-quarter 2006 earnings in January.

Whether Lennar's write-offs continue in 2007 remains a question mark.

Hovnanian: Even though the company says it is done with impairment charges, some analysts believe otherwise.

Mack, the Standard & Poor's analyst, believes the company will record an additional $200 million of impairments next year and $90 million of earnings (prior to the impairments). The result is that the company's book value will either stay flat or decline from the end of 2006 to the end of 2007 at the company, he says.

D.R. Horton: While Hovnanian said it tested all of its land positions, D.R. Horton said in its recent 10-K that it tested just $750 million worth of housing communities under development.

The company, however, lists $11.3 billion of inventories on its balance sheet, which suggests further impairments are possible at other communities down the road.

Given builders' big stock gains, it seems that investors expected impairments and write-offs at the builders to finish in 2006. They could be in for a big surprise in 2007.

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