Lennar Tries Web Auction to Battle Housing Slump

Last year as the housing market weakened, Lennar was among the first U.S. home builders to aggressively discount homes in order to move inventory. Now, the Miami-based company is taking another possibly trend-setting approach to spur sales by auctioning its homes off on the Internet. Lennar is “much better strategically positioned by moving through assets and getting returns today as opposed to waiting for a sunny day,” said Credit Suisse analyst Ivy Zelman. But the flip side is that an auction smacks of desperation and may deter already skittish buyers who are worried that the market could further soften. For its inaugural online sale, Lennar put up 24 residences in three locations, a small but representative sample of the company’s extensive holdings in California’s Palm Springs and Coachella Valley. This vacation and retirement area was a magnet for speculators and second-home buyers during the housing boom and a potential destination for middle-class buyers priced out of the Los Angeles suburbs, but pockets of the market are now oversupplied. None of the properties fetched their reserve prices during regular bidding, but Lennar agreed to sell a home for $1.1 million that had been listed at $1.4 million, and other sales resulted, as well. Lennar took pains to avoid the appearance of a fire sale; salespersons were even instructed not to refer to it as an “auction.” The Internet auction certainly spiked interest in the Lennar homes. Saleswoman Carol Corcoran fielded inquiries from as far away as Canada and Hawaii. Hundreds of shoppers visited the homes in person, including representatives of rival builders doing reconnaissance work, Lennar employees said. In the end, there was spirited competition for several homes, but just 34 actual bidders. (www.realestatejournal.com)
Real Estate Journal.com (5/10/07); Jonathan Karp and Michael Corkery, The Wall Street Journal Online

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Is Home Slump a Speed Bump for Spenders?

Some businesses say they are already seeing the fallout of falling home sales and what could be the first dip in national median home prices since the late 1960s. “All you have to do is look at those states that have the most distress in housing,” said Mike Jackson, CEO of AutoNation, the nation’s largest auto retailer. “You have the biggest decline in auto sales.” However, Jim Paulsen, chief investment strategist for Wells Capital Management, noted that overall consumer spending has held up following the peak of mortgage equity withdrawal in 2005, growing at a nearly 4% annual rate in the past six months. Goldman Sachs economist Jan Hatzius expects consumer spending growth to slow to 2% to 2.5% for the rest of the year, but said that the rising stock market, strong income growth and the fact that wealth effects from housing tend to lag is helping to offset a drop in mortgage equity withdrawal from $908 billion in 2005 to $646 billion in 2006. “A weaker housing market exerts a negative effect, but only a small one, on consumer spending,” Congressional Budget Office director Peter Orszag said. “In the absence of a substantial further fall in housing prices, we expect the effect on consumer spending to remain relatively small.” (www.usatoday.com)
USA Today (5/10/07); Sue Kirchhoff

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GM Hurt by Weak Housing Market

In-house sales and market analysts at GM and Ford Motor Co. said they believed that one factor behind slumping auto sales in April was weakening real estate prices that reduced the amount of cash that consumers were pulling out of home equity. As the housing market peaked in 2005, home owners pulled almost $1 trillion out of their residences through refinancing, gains on sales and home equity borrowing, said Mark Zandi, chief economist at Moody’s Economy.com. The annual rate through the first quarter of this year “has fallen very sharply, to less than $500 billion, and that’s going to weaken further as home prices continue to fall.” That could mean a big hit for automakers, whose inventories are starting to swell as sales slip. Fourteen percent of all sales of new passenger vehicles are cash deals, usually from home equity funds. Zandi added that some of the weakness in the home mortgage market could filter into the auto industry as people start running late on car payments as they juggle funds to keep their mortgage payments current. (www.latimes.com)
Los Angeles Times (5/4/07); John O’Dell

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Florida’s Growing Wildfire Problem

An explosive 13% increase in population between 2000 and 2006 in Florida has pushed more people into rural areas, limiting the options for controlled burns to eliminate dry brush that during drought conditions can be ideal kindling for a wildfire sparked by lightning or a discarded cigarette butt. “We call that the wild land/urban interface problem — where wild lands meet the homes,” said Rose Davis, spokeswoman for the national Interagency Fire Center in Boise, Idaho. “Not only does that impact where we can do prescribed fires and thinning, but it also impacts our fire costs. If we have to protect communities and homes, that is increasingly expensive.” In Florida, more than 200 wildfires burned tens of thousands of acres last week. Near Naples on Tuesday, a 13,000-acre blaze forced the evacuation of about a dozen residences, and one home and two mobile homes were lost. Up near Jacksonville in Bradford County, two fires merged Monday to become a 16,000-acre blaze. Near Orlando, some 6,000 acres burned in Flagler County, and some 1,000 acres burned in Lake County. To mitigate the risks posed by wildfires, residents should clear property of brush, dead trees and especially unkempt foliage growing close to their homes, said Jim Harrell, a spokesman for the Florida Division of Forestry. (www.csmonitor.com)
Christian Science Monitor; (5/11/07); Amy Green

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LEDs Emerge to Fight Fluorescents

Compact fluorescent bulbs are the only real alternative right now to the inefficient incandescent light bulb that will eventually be banned in California, Canada and a growing number of locations, but “bulbs” that use light-emitting diodes, or LEDs, are quickly emerging as a challenger. LEDs, which are small chips usually encased in a glass dome the size of a matchstick head, have been in use in electronics for decades to indicate such things as whether a VCR is on or off. Those LEDs usually were red or green, but a scientific breakthrough in the 1990s paved the way for the production of LEDs that produce white light. Lighting consumes 22% of electricity produced in the U.S., according to the Department of Energy, and widespread use of LED lighting could cut consumption in half. By 2027, LED lighting could cut annual energy use by the equivalent of 500 million barrels of oil, with the attendant reduction in emissions of carbon dioxide, which is believed to be responsible for global warming. However, consumers haven’t warmed to LEDs because the light quality has been unsatisfactory, most take time to turn on and they aren’t dimmable. Nadarajah Narendran, director of lighting research at Rensselaer Polytechnic Institute, cautions that there are still technical issues to work out. While single LEDs can demonstrate very high energy efficiency in the lab, when they’re combined into fixtures, their efficiency is considerably lower, in part because the diodes keep heat in the fixture rather than radiating it. Also, because of their high prices, he doesn’t believe LEDs will be ready to replace incandescents in all their uses for the next five to 10 years. (www.washingtonpost.com)
Washington Post (5/10/07); Peter Svensson, Associated Press

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A ‘No-Fee’ Mortgage That Might Be for Real

Without raising interest rates to its applicants, Bank of America said that its new “no-fee mortgage plus” plan eliminates traditional mortgage and settlement charges that can total 3% to 5% of the mortgage amount and run into the thousands of dollars. Floyd Robinson, president of consumer real estate for Bank of America, said that the company is able to offer the product in part because of its sheer size; the bank has $1.5 trillion in total assets, 55 million banking customers nationwide and a nearly $350 billion portfolio of first and second home mortgages. That size allows it to create cost efficiencies and take over certain responsibilities that smaller institutions cannot. For instance, the no-fee program allows downpayments as small as 5% for conventional mortgages up to $417,000 — and even lower for certain “jumbo” loans up to $3 million — without private mortgage insurance premiums. The bank intends to keep all or most of the no-fee loans in its portfolio, he said. (www.washingtonpost.com)
Washington Post (5/12/07); Kenneth R. Harney

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