Orders increased to 3,027 for the fourth quarter ended Nov. 30 from 2,520 a year earlier, the Miami-based company said in a statement today. The shares gained $1.49, or 7.2 percent, to $22.25 in New York, their highest close since October 2007.

The 11-member Standard & Poor’s 1500 Homebuilding index rose 4.1 percent, led by KB Home. The Los Angeles-based builder, which targets first-time buyers, climbed 12 percent to $8.62 after Lennar Chief Executive Officer Stuart Miller said he is seeing improvement in demand for housing.

“As I look ahead to 2012, I’m cautiously optimistic that we’re seeing a real bottom form and we’re beginning to see a recovery,” Miller said on a conference call today. “Stabilization will emanate from the most desirable markets and spread slowly outward.”

U.S. housing starts climbed to a 19-month high and builder confidence rose for a third consecutive month in November. While there are signs that the market may be starting to pick up, new homes sold at an annual pace of 315,000 in November, putting 2011 on pace to be the slowest year in Commerce Department records dating to 1963.

‘Short Squeeze’

KB Home (KBH)’s rise is a sign that investors are putting their money into riskier homebuilders, said Jack Micenko, an analyst with Susquehanna International Group LLP. KB Home is the builder with the highest percent of its shares held by short sellers, who have been betting that the stock will go down, he said.

“Throw a nice dose of short squeeze and you get fireworks today,” Micenko said in an e-mail from New York.

Lennar’s fourth-quarter sales improved in markets that have been hit hard by the real estate collapse, including Florida, Atlanta, Phoenix, Las Vegas and parts of California, according to Miller. More people are considering buying, including some who lost homes to foreclosure, as the cost of owning compares favorably with renting, he said.

“They are looking to reconsider the rental lifestyle where rental rates have been rising and are likely to continue to rise for the foreseeable future,” Miller said.

Revenue Increases

Fourth-quarter revenue increased to $952.7 million from $860.1 million a year earlier. Homebuilding revenue rose 9.6 percent to $834 million and deliveries of homes to buyers increased 9 percent to 3,375.

Net income for the fourth quarter dropped to $30.3 million, or 16 cents a share, from $32 million, or 17 cents, a year earlier. Lennar was expected to earn 16 cents a share, the average estimate of 14 analysts surveyed by Bloomberg.

The builder has been cutting costs and buying distressed real estate through Rialto Investments. The unit had operating earnings of $6 million in the fourth quarter, down from $25.1 million a year earlier. Rialto’s revenue climbed to $46.5 million from $19.7 million. The unit’s earnings declined as Rialto reported mark-to-market unrealized losses of $7.6 million related to a portfolio of investments in the U.S. Treasury’s Public Private Investment Program, which finances purchases of distressed mortgage securities.

Gross margin on home sales, a measure of profitability, widened to 21.6 percent from 20.8 percent and the average price rose 2 percent to $243,000, Lennar said.

“Each of the company’s operating segments was profitable despite challenging housing-market conditions, and its homebuilding operations performed slightly ahead of our expectations,” Vincent Foley, senior research analyst with Barclays Capital Inc. in New York, said in a note to investors.

Lennar is the largest U.S. homebuilder by revenue after PulteGroup Inc. (PHM) and D.R. Horton Inc. (DHI)

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net.

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net.

http://www.bloomberg.com/news/2012-01-11/lennar-quarterly-profit-declines-on-homebuilder-s-rialto-investments-unit.html

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