For homebuilders like Hovnanian Enterprises Inc. (NYSE: HOV), Toll Brothers Inc. (NYSE: TOL) and D.R. Horton Inc. (NYSE: DHI), 2007 was a year to forget, and 2008 probably isn't going to be that great either.For Hovnanian, which today reported a fourfold increase in its fourth-quarter loss, times are going to be especially hard. The New Jersey company is selling off property at a furious pace, reducing its total land position by 47%, and will cut it further next year, according to Chief Financial Officer J. Larry Sorsby. During the fourth quarter, land sales rose to $64.15 million compared with $41.3 million a year earlier. Homebuilding revenue fell to $1.3 billion. Obviously, that's a not a situation that's sustainable for a company whose business is selling homes, not selling land. Shares of Hovnanian are down $2.09, or 24%, at last check to $6.45.
Believe it or not, Hovnanian was pleased with the results. Chief Executive Ara K. Hovnanian said in the press release that the company exceeded its projections and paid down more of its debts than it projected. Moreover, the company's banks gave it a waiver for covenants under its $1.5 billion revolving credit facility. Hovnanian, though, is seeking seeking additional waivers. Again, not a good sign.
"While the factors that created this downturn are different than any other throughout our 48-year history, we know that stronger demand for new homes will return," he said. "What is not known is how long the market will take to rebound."
Another issue, of course, is whether the company's banks and investors are going to stick around long enough for this to happen, since new home sales probably aren't going to rebound significantly for a while, since supplies of existing homes at rock-bottom prices are plentiful.
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Reader Comments (Page 1 of 1)
1-21-2008 @ 10:18AM
Americas Watchdog said...
We have the Homeowners Consumer Center & the National Mortgage Complaint Center and where the homebuilders really blew it, was going into 2006 thinking that the real estate happy hour was going to continue for at least 2 more years. We are now going back and looking at conference call transcripts, and its amazing. With mounting evidence that the party was over. They kept on building in 2006 at levels higher than 2005-----the problem---the market was starting to go south. We are also hearing from shareholders who took the bait, and bought the stock or kept their position, again with mounting evidence the 4th quarter of 2005 was the time to sell.
What complicates things in 2008 is homebuilders are going to have to slash prices & dump inventory, to keep their lights on. Dumping inventory will leave homeowners who purchased a new house in 2003-2006 will now be holding the bag on a property in many cases worth 20%-30% less than they paid for it. (Based on the slash & burn price from the homebuilder)
We would call it the perfect storm for US real estate markets. Because homebuilders were pushing values in 2003-2006 this practice puts them in the center of the storm. The US real estate market in 2008-2009 scares us to death.