The housing bubble blues have hit the homebuilders. "Wall Street analysts pared back profit expectations for home builder Hovnanian Enterprises Inc. on Tuesday, reacting as the company warned that slowing housing markets, delays and materials costs would hit earnings this year."

"'While we have expected weaker trends in orders, we were surprised by the magnitude of the 20% decline in the quarter given the significant community growth,' Daniel Oppenheim said. 'The sharp decline in orders results from both lower gross orders and a significant uptick in cancellations, likely in the Southeast, Southwest and West,' said Oppenheim."

"The company 'seems to be underscoring that builders are being especially aggressive in liquidating inventory created by order cancellations, which is impacting margins sooner and more substantially than we had forecast in the short term,' analyst Carl Reichardt said. 'While the slowdown in many markets reflected in orders taken in [the second half of 2005] and later, many of which are yet to close, we are surprised by the magnitude of the earnings shortfall relative to guidance just two months old, highlighting the minimal visibility in the industry,' analyst Ivy Zelman wrote."

"'Hovnanian is the first builder to report a quarter than includes April orders (since its fiscal quarter ended April 30), perhaps demonstrating that April continues to be weak,' said Reichardt."

"In another sign that the housing market is pulling back faster than expected, Hovnanian became the second major builder to take write downs in connection with land. Last week, rival Centex Corp. (CTX) took a charge of 14 cents a share in connection with the write down of certain option deposits and land parcels in Washington, D.C., Sacramento and San Diego."

"The write downs sent up red flags for investors, who worried this was a sign that land values were sharply deteriorating, which could mean the housing market was falling fast."

"The St. Joe Company today announced that its Net Income for the first quarter of 2006 was $3.7 million compared to $15.4 million for the first quarter of 2005."

"'We could generate additional quarterly earnings by slashing prices for our low-basis land. But those short-term earnings would be at a significant cost to shareholders,' said Rummell. 'It appears that speculators are no longer a major demand element in this market,' said Rummell. 'There are also a larger number of resale units on the market, providing further options to potential buyers. The size of the resale inventory suggests it will be some time before we return to a favorable balance between supply and demand in this market segment,' he said."

Some observers fear that Toll Brother's focus on the fragile upper end of the housing market could mean further setbacks ahead. The stock has since fallen about 48% off its 52-week high of $58.67 last summer amid worries of a housing-bubble explosion."

"What separates Toll from the rest of the major builders is its heavy focus on the higher end of the housing market. Targeting this affluent segment has been an attractive niche for Toll in recent years, but there's worry now about how this strategy will pan out in a slowing housing market in which inventories are rising and discretionary housing sales might seriously slow."

"The market will get the latest update when Toll releases new-home orders for its fiscal second quarter Friday, and the company could once again drag down the sector if the numbers look worse than expected. The stock fell below $30 in early February, when Toll posted a 29% drop in new orders for its first quarter. Toll pulled its fiscal 2007 earnings guidance in December and gave little comfort to investors in its first-quarter earnings report in late February."

"'One key thing hurting them is the inventory of existing homes for sale. That has surged,' says analyst Greg Gieber. 'Anybody who is buying a Toll house most likely has a house that they are selling or will have to sell in order to close on the Toll house.'"

"Big Builder Magazine released its annual report card of 21 top public builders today. The survey found that by the end of 2005 sales were slowing in the fourth quarter and cancellations were up. '"I've been saying on the record for the last five years that I didn't think the next year was going to be as good. I was wrong for five years. Unfortunately, this year I'm going to be right,' says Don Tomnitz, president and CEO of D.R. Horton."

"The annual report also found that California-based KB Home had the biggest order backlog in 2005; a whopping 6,764 backlog, a 26 percent increase over the previous year. And Michigan-based Pulte Corp. had the largest number of lot inventories, 369,300, a 52 percent increase."

"'During the run up over the past few years, the tendency has been to look at these companies as a synchronized sector, but that's all changing now,' says John McManus, editor in chief of Big Builder. 'In the next 18 months, underneath all the rhetoric that good markets will offset deteriorating ones, nearly everyone expects there's going to be casualties among home builders of various sizes. The every-man-for-himself era among big residential construction companies has arrived.'"