No sugar-coating at Lennar…

images-5.jpegEarlier this week, there was news that new home sales continued to decline and that it was even worse than the forecast. If that wasn’t scary enough, take a look at the 10-K that home-builder Lennar (LEN) filed late yesterday.

Now Lennar is a bit more blunt than some of the other home-builders. Or, perhaps a bit more realistic. Last February, for example, in the 10-K it filed on Feb. 8, it was already setting the stage by warning that the “strong demand resulted from ‘speculators’_ purchasing new homes with the intention of selling them at a profit, rather than with the intention of living in them. In many instances, the speculators do not have the financial resources to retain the purchased homes, and are selling these homes at depressed prices.” At the time, Lennar was trading at around $52 and heading south.

But this sounds downright giddy when compared to some of the warnings in the current 10-K. Here’s the very first risk factor:

The home-building industry is in the midst of a significant downturn. As a result, we have experienced a significant decline in demand for newly built homes in almost all of our markets. Homebuilders’ inventories of unsold new homes have increased as a result of increased cancellation rates on pending contracts as new home buyers sometimes find it more advantageous to forfeit a deposit than to complete the purchase of the home. In addition, an oversupply of alternatives to new homes, such as rental properties and used homes, has depressed prices and reduced margins. This combination of lower demand and higher inventories affects both the number of homes we can sell and the prices at which we can sell them. For example, in 2007 we experienced a significant decline in our sales results, significant reductions in our margins as a result of higher levels of sales incentives and price concessions, and a higher than normal cancellation rate. We have no basis for predicting how long demand and supply will remain out of balance in markets where we operate or whether, even if demand and supply come back in balance, sales volumes or pricing will return to prior levels.

It’s that last sentence that is particularly sobering: they don’t know how long this will last, or even if supply and demand will ever come back into balance. With words like that, at least you know why sites like, which my friend, Barry Ritholtz highlighted yesterday, now exist.