Realty Check

Builder CEOs Talk: Too Bad It's Nothing We Don't Know


I don’t often get to chat with the CEOs of the big public builders anymore. Most of them can’t stand me because they think I’m to blame for the downfall of the housing market (What? Is my middle name Mozilo or something???).

Anyway, thanks to a press conference on Capitol Hill yesterday, where several builders came to back a tax proposal in the Senate stimulus package, I got a chance to talk with the CEOs of Lennar and Centex   face-to-face (let’s face it, they were trapped in a small room with lots of lawmakers around who had actually asked the press to come).

Both Mr. Eller of Centex and Mr. Miller of Lennar were not just friendly and accommodating, but also quite candid about the state of their industry and the near future of their operations. It struck me as pretty grim that they were willing to say out loud, to a reporter like me, that they see no light at the end of the tunnel.

Mr. Eller said this will ultimately be the deepest and longest housing correction since World War II. Mr. Miller said: “There really isn’t any visibility as to where the bottom is.” Both are looking to the stimulus package for help, not just to help buyers get back in the game, but to help companies like theirs generate much-needed cash.

Today the CEO of Toll Brothers , Robert Toll, said in preliminary quarterly results: “Based on current traffic and deposits, we are not yet seeing much light at the end of the tunnel.”

I want to thank the builders for being so up-front on this, not running for the door when they saw me coming. I do, however, wish they had something to tell me that I didn’t already know. The plan, they say, seems to be to sit tight on ever-tighter balance sheets, and build fewer and smaller homes in order to bring prices down to a level that people can accept.

This will be one of the nastiest corrections the home building industry has ever seen. It’s unlike any other because it was not brought on by the economy, but by a wild, heady, unscrupulous mortgage market--and a willingness by builders to jump on the bandwagon and hammer away, even when all that tasty demand was clearly too good to be true.

Questions?  Comments?