Updated from 12:50 p.m. EDT
For those hoping that the U.S. housing market may be rebounding, several reports out Tuesday didn't do much to increase optimism.
The government's latest data showed that sales of new homes dropped at a steeper-than-expected rate in May, while inventories remained at historically high levels. Meanwhile, prices continued to fall, and homebuilder
indicated that things could get worse before they get better.
Shares of homebuilders slid on the day. Lennar closed down 1.20, or 3.1%, to $37.55.
fell 4.2% to $16.68, and
fell 3.1% to 22.56.
According to the Census Bureau, sales of new homes came in at an annual rate of 915,000 units in May, below the revised April rate of 930,000 and down 15.8% from a year ago.
Economists expected a sales rate of 925,000 homes in May, according to estimates from
Inventory for sale at the end of the month totaled 536,000 units, which represents 7.1 months of supply at the current sales rate. In April, inventories totaled a higher 542,000 units, but that only represented 7 months of supply because of the higher sales pace.
The median sales price of new houses sold in May fell to $236,100 from $238,200 a year earlier.
The government data comes on the heels of Monday's report from the National Association of Realtors that said inventories of existing homes for sale remained at the
highest levels since 1992.
The large amount of inventory continues to put pressure on pricing. Another economic report out Tuesday, the S&P/Case-Shiller home price index, showed prices in 10 major U.S. cities fell 2.7% in April. The decline was the largest since late 1991, when the economy was in recession.
"A review of the decline in home price returns on a regional level shows no region is immune to the weakening price returns," said Robert J. Shiller, chief economist at MacroMarkets LLC and the creator of the index.
The biggest price declines came in Detroit, where prices fell 9.3%. That was followed by a 6.7% decline in San Diego and a 5.7% drop in Washington, D.C, according to the index.
The data came on the same day that Lennar reported an
unexpected loss for its recently ended quarter, mostly because of large land impairment charges related to falling housing prices and unprofitable land investments.
Lennar on Tuesday said that the housing market continued to deteriorate in the quarter, and it projected further weakness in the months ahead.
"As we look to our third quarter and the remainder of 2007, we continue to see weak, and perhaps deteriorating, market conditions," said President and CEO Stuart Miller. "Given uncertain market conditions, we continue to lack visibility as to future results, but we currently expect to be in a loss position in our third quarter."
On the company's conference call, Miller said that the overriding sentiment from Lennar's sales offices are that most markets are becoming increasingly competitive.
"Supply and demand are continuing to shift in many markets more rapidly than expected," Miller said.
Lennar's management pointed to three factors needed to restore balance in the housing market. The company said inventory of new and existing homes have to stabilize and then be absorbed, and mortgage markets need to settle. As well, consumer confidence needs to be restored, Miller said.
"The question that investors should have been asking themselves six months ago was whether or not 2007 was going to be the bottom," says Michael Elrad, senior managing partner with GEM Realty Capital, which operates a private equity real estate business and a long/short real estate hedge fund.
"The two questions investors should be asking themselves now are how bad can 2008 get and is there a possibility that 2009 could be sluggish?" he adds.