Lennar Knocks Down Optimism

Questions remain about whether the declining housing market will create a U.S. recession or whether the capital markets will dry up and reduce overall liquidity, Miller said.

He also highlighted the growing payment shock that homeowners are facing as adjustable-rate mortgages reset higher.

"The resetting of rates is creating payment stress concurrent with home prices falling and equity evaporating," Miller said. The worry among industry observers is that this could increase the supply of homes on the market at a time when lending underwriting is tightening.

"Although we see some sporadic indications of firming in some markets....the reality is that market conditions are still challenging at best," Miller said.

Lennar said that given these conditions, it doesn't expect to achieve its previously stated 2007 earnings goal, and it's not comfortable with providing a new projection.

In January, Lennar gave an upbeat, yet seemingly unrealistic, earnings guidance for the current fiscal year. The company at that time said its fiscal 2007 earnings could meet or exceed its 2006 profit of $3.69 per share, compared to the then-Wall Street estimate of $2.61.

Lennar's target was unrealistic because it was based on a long string of conditions that had to be met. It required that strong employment continues, low interest rates stay low, the economy stays healthy and the market for new homes demonstrates traditional seasonal improvement.