“Houston, we have a problem”…. A phrase made popular by the film “Apollo 13,” which chronicles the aborted 1970 U.S. lunar mission, may now apply to new home construction in the Texan city.
Continue Reading Below
Lennar (NYSE:LEN), the nation’s second largest home builder, reported the strongest first-quarter profits since 2006 on Tuesday, yet noted Houston was its only region to not see a jump.
“The decrease in home deliveries in Houston was primarily due to less demand driven by volatility in the energy sector,” the company noted in its earnings release. Houston, which counts the energy sector as one its biggest industries, is feeling the pinch of depressed oil prices, which are down 62% from the record $101 per barrel reached in 2014.
Despite the start of the key spring selling season, Lennar President Rick Beckwitt told analyts the region, especially homes valued over $350K to $400K, will likely remain challenged for the rest of the year.
|DHI||D.R. HORTON INC.||41.47||-0.19||-0.46%|
|XHB||SPDR SERIES TRUST SPDR S&P HOMEBUILDERS ETF||40.72||+0.23||+0.57%|
Houston is home to 25 Fortune 500 companies, including ConocoPhillips (NYSE:COP) and Halliburton (NYSE:HAL), which is in the process of laying-off 8% of its workforce or 5,000 employees. It has eliminated nearly 20,000 jobs since the oil downturn, according to reports. The company is also in the process of trying to combine with Baker Hughes (NYSE:BHI) in a $35 billion deal. The tie-up continues to get pushback from the Department of Justice.
As for existing home prices, those remain solid, according to the Houston Association of Realtors. Prices of homes valued $150K-$500K saw gains in February with the biggest jump, 9.5%, in the $150K-$250K segment. The exception? Luxury homes, or those valued $500K and higher, saw a 12% drop. The average value of a Lennar home is $365K.