The housing boom during the first half of the last decade added over 10 million apartments, condominiums and homes to the U. S. housing stock. Now, however, just as the construction industry’s economic recovery is choking on the glut of foreclosed and unsold housing units, the prospect of any recovery for housing construction is further dampened by the tumbling of the walls of Jericho hastily erected and poorly fabricated during the overbuilt, easy money years of 2000 through 2005.
Three of Illinois’ most active home builders – Pulte, D. R. Horton and Lennar – are currently plagued by the financial fallout from a doubling of the rate of defects per new housing unit during 2000 through 2005, compared to the immediately previous six year period, according to estimates from the International Association of Certified Home Inspectors. Adding these woes to the ongoing multistate litigation over problems resulting from use of corrosive Chinese drywall products means the home building sector of the economy is facing a liability headache so tall even Superman couldn’t leap it in a single bound.
Pulte and D. R. Horton are the nation’s two largest home builders. In the third quarter, Pulte recorded a one time expense of $272.2 million – 25% of Pulte’s third quarter revenue – for increased reserves to cover losses for warranty repairs on homes built over the past 10 years. Similarly, Horton states its net liabilities for construction defect claims as of September 30, 2010, at $319.8 million, more than doubling the liability reserve Horton stated on September 30, 2003. Pulte CEO Richard J. Dugas told securities analysts that the huge increase in defects reserves “was completely unforeseen.” The housing sector issues, and corporate accounting for burgeoning liabilities, bother Towers Watson actuary Ron Kozlowski. “Their liabilities are underfunded,” Kozlowski contends. He remarks that home builders “have their heads in the sand.”
Meanwhile, 13 customers who bought new homes from Lennar in Hutto Parke, a subdivision of an old cotton plantation 30 minutes outside Austin, Texas, are suing for fractured foundations, drooping ceilings and sagging fences because, they contend, the homes were put up on unstable soil. Lennar has already settled claims by 221 of the 443 homebuyers in Hutto Parke.
In today’s liability insurance market of ever tightening claims made policy forms, little if any of these claims asserted against housing contractors will be covered by any sort of insurance, and the builders will have to dig deep into shareholder pockets to pay the resulting attorney fees and costs of litigation, as well as the customer recoveries against them. As if the housing sector didn’t have enough problems getting out of the starting blocks and running the high hurdles toward economic recovery.
Three of Illinois’ most active home builders – Pulte, D. R. Horton and Lennar – are currently plagued by the financial fallout from a doubling of the rate of defects per new housing unit during 2000 through 2005, compared to the immediately previous six year period, according to estimates from the International Association of Certified Home Inspectors. Adding these woes to the ongoing multistate litigation over problems resulting from use of corrosive Chinese drywall products means the home building sector of the economy is facing a liability headache so tall even Superman couldn’t leap it in a single bound.
Pulte and D. R. Horton are the nation’s two largest home builders. In the third quarter, Pulte recorded a one time expense of $272.2 million – 25% of Pulte’s third quarter revenue – for increased reserves to cover losses for warranty repairs on homes built over the past 10 years. Similarly, Horton states its net liabilities for construction defect claims as of September 30, 2010, at $319.8 million, more than doubling the liability reserve Horton stated on September 30, 2003. Pulte CEO Richard J. Dugas told securities analysts that the huge increase in defects reserves “was completely unforeseen.” The housing sector issues, and corporate accounting for burgeoning liabilities, bother Towers Watson actuary Ron Kozlowski. “Their liabilities are underfunded,” Kozlowski contends. He remarks that home builders “have their heads in the sand.”
Meanwhile, 13 customers who bought new homes from Lennar in Hutto Parke, a subdivision of an old cotton plantation 30 minutes outside Austin, Texas, are suing for fractured foundations, drooping ceilings and sagging fences because, they contend, the homes were put up on unstable soil. Lennar has already settled claims by 221 of the 443 homebuyers in Hutto Parke.
In today’s liability insurance market of ever tightening claims made policy forms, little if any of these claims asserted against housing contractors will be covered by any sort of insurance, and the builders will have to dig deep into shareholder pockets to pay the resulting attorney fees and costs of litigation, as well as the customer recoveries against them. As if the housing sector didn’t have enough problems getting out of the starting blocks and running the high hurdles toward economic recovery.
