(Bloomberg) — Lennar Corp., the third-largest U.S. homebuilder, reported a bigger-than-expected third-quarter loss as revenue dropped and interest costs increased.

The net loss for the three months ended Aug. 31 widened to $171.6 million, or 97 cents a share, from $89 million, or 56 cents, a year earlier, the Miami-based company said in a statement today. The average estimate by 14 analysts in a Bloomberg survey was for a loss of about 51 cents a share.

Lennar has reported 10 straight quarterly losses and, like most companies in the industry, is struggling to balance its books by selling land and cutting costs. Four months of gains in new home sales has encouraged builders such as Lennar, Meritage Homes Corp. and KB Home to resume property purchases as they anticipate a recovery.

“Operating trends remained challenged, signaling that the housing market has not yet fully recovered,” Vincent Foley, an analyst at Barclays Capital Credit Research in New York said in a note to investors. Foley said he was disappointed by the company’s “cash burn” because the third quarter usually strong for cash generation.

Lennar fell as much as 7.9 percent in New York Stock Exchange trading. The shares were down 5.4 percent to $15.65 at 10:37 a.m., giving the company a market value of $2.6 billion.

New Orders

Lennar said 76 cents per share of its losses were related to valuation adjustments, non-cash deferred tax-asset valuation allowance and other write-offs.

Homebuilding revenue fell 42 percent in the third quarter to $643.6 million, Lennar said. Interest payments rose 47 percent to $40.7 million.

New orders fell 8 percent from a year earlier, the smallest decline since the quarter ended November 2006, Miller said. Lennar started construction on more homes in the third quarter, which will lead to higher deliveries in the fourth.

“Assuming the economy continues to stabilize, we believe our improved sales environment should enable us to return to profitability in fiscal 2010,” Miller said.

Pali Capital Inc. homebuilder analyst Stephen East called it a “pretty positive” quarter for Lennar. “This result and any other result turned in by virtually any builder in absolute terms is not good, but we’re crawling off the bottom here,” he said. East has rated the company a “buy” since March 27.

‘Strong Balance Sheet’

Anna Torma, an analyst with Soleil Securities Group in New York, kept her “buy” rating on Lennar after the earnings report. She has maintained a buy on Lennar since starting to cover the company in November 2007.

“Lennar continued to have a strong balance sheet and ended the quarter with $1.34 billion in cash and no borrowings against its credit facility,” she wrote in a note after the earnings release.

The backlog of homes under contract and not yet sold was the highest in a year at $647 million. The cancellation rate fell to 19 percent from 27 percent a year earlier.

Realtors, bankers and homebuilders are lobbying Congress to extend an $8,000 federal tax incentive for first-time homebuyers, saying boosted property sales. The credit is scheduled to expire in November.

Construction Climbs

New-home construction rose nationwide in August to an annual pace of 598,000 units, the fastest rate since November 2008, the Department of Commerce reported Sept. 17. So far this year, the 12-member Standard and Poor’s Supercomposite Homebuilding Index gained 40 percent through Sept. 18. Lennar’s shares climbed 91 percent in the same period.

Housing affordability rose to a two-decade high in April, according to records dating to 1989 supplied by the National Association of Realtors. Payments for newly purchased homes accounted for an average 14 percent of household income that month.

In July, Lennar pledged $140 million for a 15 percent share of Landsource Communities Development LLC, which includes the 15,000-acre Newhall Ranch north of Los Angeles.

The company sold a stake in Landsource in 2007 for about $900 million to the California Public Employees’ Retirement System. Lennar reinvested as part of an agreement to remove Landsource from bankruptcy.

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