Lennar Corp. is demanding that its trade contractors in Southern California either cut the price of work already completed by up to 20 percent, or be barred from Lennar work for at least six months.
homebuilder Lennar Corp., which lost $196 million in its last quarter, has sent
letters to its trade contractors in Southern California demanding that they
either cut the price of work already completed by as much as 20 percent or be
barred from bidding on other Lennar work for at least six months.
Journalreported the cost-cutting move earlier this month. While
contractors in Northern California hadn’t received letters,Brad Diede, executive
director of the California Professional Association of Specialty Contractors,
said his members had received at least the same money-back request by phone or
Chasman, president of Lennar’s Northern California/Northern
Nevada region as saying the price reductions were voluntary. “We gave them the
option to give us a rebate. If they chose not to participate, we didn’t have a
precondition on any future work with us.”
added there is no company-wide policy regarding the issue, but that each region
has a corporate edict to cut costs. Other subcontractors quoted in the article
said other Sacramento builders are following suit. “I’ve been in business for
25 years, and this is the first time I’ve ever seen retroactive pricing,” said
one contractor who wanted to remain anonymous.
said a majority of local contractors had accepted the pricing policy. “There’s
disappointment on our side, too, that the market isn’t better.”
most recent housing data further added to the disappointment. Housing starts
released by the Department of Commerce on March 20 rose 9 percent in February
to a seasonally adjusted annual rate of 1.53 million units. However, February results are still 28.5
percent below the February 2006 rate of 2.13 million.
builders’ application for new permits, considered a more reliable gauge of
future activity, fell 2.5 percent for the month, the 12th time
they’ve fallen in the past 13 months. That leaves permits down 28.6 percent compared with February
2006. Permits for single-family homes fell to a nine-year low.
In addition, The National Association of Home Builders reported
March 19 that its survey of builder sentiment fell in early March, reflecting
worries about the financing troubles in the subprime mortgage market. The
builder confidence index dropped to 36, down from a February reading of 39. A
reading below 50 means most respondents view conditions as poor. The index
reached a high of 68 in October 2005.