Ryland Group Inc., the homebuilding company, reported yesterday that it will take a pretax fourth-quarter charge of $13 million because of problems with two housing developments in California.
Nevertheless, the Columbia-based company said that it expects be profitable in the fourth quarter, as well as for the full year -- mainly because of the strength of its mortgage-related financial services segment.
"We anticipate a profit for the full year, but results will be well below our previous expectations due to these necessary reserves," Roger W. Schipke, chairman and chief executive officer, said in a statement.
Mr. Schipke said that "the trends in California and the drastic drop in national consumer confidence levels continue to pose further uncertainties" for the company and the housing industry as a whole.
For the fourth quarter, Ryland will reserve $10 million to cover an investment in a retirement community between Los Angeles and San Diego where the company and its joint-venture partner, a California savings and loan, have been building homes for the past three years.
A soil crack was recently discovered in the community, known as California Oaks, where Ryland was planning to build more homes. In an interview, Mr. Schipke said that the company is concerned that the land it purchased for the development there may require substantial regrading because of "soil instability."
Mr. Schipke also said that continuing weak market conditions in the Palm Springs area have led to the decision not to continue with a second phase of another joint venture in Southern California, resulting in an additional $3 million charge. "The Palm Springs market is very slow right now," Mr. Schipke said.
Ryland had planned to build homes on 250 lots in the community, he explained. But the company has decided not to build on 150 of the lots and will have to pay the seller a fee for not exercising its option to purchase the lots, he said.
This year will go down in the record books as "the worst building year since 1945," Mr. Schipke said. While housing inventory is plentiful and mortgage rates are low, he noted, confidence in the economy has fallen to a low level and "consumers just aren't buying."
Ryland's financial services business has been strong. It has benefited from the surge in mortgage refinancing, has expanded its mortgage servicing business and is administering mortgage-backed securities for Wall Street firms, Mr. Schipke noted.