Speculators ‘Adding To Supply’: CEO
A homebuilder is out with results after-hours. “‘We are pleased to report first quarter results at the top of our guidance range,’ said Ara K. Hovnanian, President and CEO of Hovnanian Enterprises. ‘During recent months, market conditions in many of our more highly- regulated markets, including California, Florida, Washington, D.C., and the Northeast, have cooled from their previous white hot levels, with respect to both sales pace and price increases,’ Mr. Hovnanian continued. ‘While conditions in these markets have improved from the period between Thanksgiving and the end of January, they remain slower than they were during the comparable time frame a year ago.’”
“‘In certain markets where investors in new homes and condos have been more prevalent over the past few years, it now appears that such investors are no longer contributing to demand, but instead are adding to supply as they list their condos and homes for resale. As a result, we have seen an increase in the level of resale listings in several of our markets.’”
“‘However, we expect that sales of new homes will rebound in these markets once the overhang of investor resales is cleared out. Our view is supported by our experience in the Orange County, California market, where this exact pattern occurred about a year ago.’”
“Larry Sorsby, CFO said, ‘Our 2006 projections reflect the slower market conditions that we are experiencing currently, as evidenced by a 140 to 190 basis point projected decline in our consolidated homebuilding gross margin and a lower projected number of deliveries from California than we achieved in fiscal 2005. Our first quarter earnings were only about 15% of our projected earnings for the year,’ stated Mr. Sorsby.”
“‘While we expect margins on new sales to be lower as many markets return to a normal, healthy sales environment, without the positive effects of pent-up price increases that have benefited our margins over the past several years, we see no evidence of a ‘bubble bursting,’ ‘Mr. Hovnanian concluded.”
haha, what a joker!
Yes, but with this BS, he’ll manage to squeeze a bit more out of this turnip to pad his pockets.
Of course, you “see no evidence of a ‘bubble bursting’” - you only focus moment-by-moment on the next sales figures.
Price erosion, inventory increases and incentives from home builders all add up to weakening market fundamentals.
The greater fool theory is at work, only now the greater number of fools are those looking to sell vs. the past 5 years and the hordes of “investors”.
1.4 -1.9%
Interesting. not much of a decline given
Where investors account for 25-35% of all new home sales . . . how does this add up again?
South Florida is Investor ridden…..Its going to be really bad!
“Mr. Hovnanian continued. ‘While conditions in these markets have improved from the period between Thanksgiving and the end of January, they remain slower than they were during the comparable time frame a year ago.’”
Typical SPIN-DOCTOR… Dime o’ Dozen these days…
“‘While we expect margins on new sales to be lower as many markets return to a normal, healthy sales environment, without the positive effects of pent-up price increases that have benefited our margins over the past several years, we see no evidence of a ‘bubble bursting,’ ‘Mr. Hovnanian concluded.”
KEEP SPINNING, Mr. H.
I give you credit for trying to milk a few more pay checks out of it…
2 cents.
I am currently renting a new Hovnanian “McMansion”. It is truly an awkward home to live in. No closet space. Huge windows that let in cold air. At least we don’t have the two-story family room our neighbors have. Their electric bill was running between $400-$600 a month last summer. (And believe me, they are not high wage earners). I would say this company is my least favorite builder. They also use a lot of vinyl siding and rarely use much brick on their designs.
We checked out some of their homes in the San Diego area. I have to agree, their floorplans are strange. Big homes, SF-wise, with not much to show for it. Like who needs a 3,000 SF house with only *three* bedrooms???? Our old house was just under 1,300 SF and had 3/2 + family room and LR. And the living spaces were actually LARGER than many of the 3,000 SF homes. Layout is EVERYTHING. Big waste of space in these McMansions, and poorly designed w/respect to traffic flow.
Yes - you said it. And the kitchen - I think I had more cabinets in my townhouse.
Lots of empty calories in those McMansions.
What I want to know is, who would pay $1.5 million + for this eyesore:
http://tinyurl.com/e6dwf ???
Here’s that attractive use of brick you were asking for!
Last year there was NO MENTION of investors buying up all their properties. Now its an excuse for declining sales??!??!
First quarter earnings were 15% of budget for the year. Does that mean that earnings for the year will be only 60% of previous guidance? All of a sudden, the stock doesn’t look as “cheap.” Lower margins and lower sales tells me that 60% of previous guidance will be optimistic by later in the year, especially as higher land costs on more recently purchased land and higher construction costs continue to squeeze margins if they can’t push home prices higher….
Excellent comment LALawyer, the others are good too. Reading the Spin from Mr H. is it any wonder these people built more homes in January’06..they can’t sell them in CA HOV reported over 3500 unit sales versus 3000 in same quarter of 05with slighly lower revenues…We’re working harder for less…So ‘New housing starts’ stagger higher while new mortgage apllications continue to drop “MOM”? Supply keeps increasing!
If investors account for 25% of the market, if they are selling instead of buying, will there be a 50% swing in volume, assuming most sold? I’m no math whiz; someone please help me out here.
Well, that depends on your assumptions.
Let’s suppose that under normal circumstances 100 houses are available to sell per year. Now, let’s suppose that a speculative frenzy occurs so that 25% of the buyers are speculators. Then, the next year they dump the houses on to the market.
What will happen? The crucial questions are: How many “normal” buyers choose not to buy? How much new construction did the builders bring to the market? Do the builders know when to stop?
At one extreme, it could be that 25 “normal” buyers choose not to buy. Therefore, 100 houses are sold like normal (75 to normal and 25 to speculators). The next year there will be 125 houses for sale. If those 25 “normal” buyers who sat out the previous year decide to buy, they will pick up the slack so that all 125 houses sell.
At the other extreme, suppose that all 100 of the “normal” buyers bought in addition to the 25 speculators. A builder builds 25 additional houses to make up the short fall. The next year the speculators dump their houses. So, there are 125 houses for sale but only 100 buyers.
Now, if the builder did not realize that those 25 houses sold to speculators, he might try to build an additional 25 houses in the second year. Here, there would be 150 houses on the market and 100 buyers.
What situation do we have on our hands? Time will tell…
Great comments Montie. Obviously lots of variables, but yeah, I think we are going to see a radical oversupply because the speculators will be dumping instead of buying, builders will finish out their approved and financed projects already in the works, and “normal” buyers will probably sit on the sidelines until things become more “normal.”
There was plenty of talk of Investors last year… Just coming from us. The builders referred to them as “baby boomers looking for second vacation or retirement homes”.
As far as Florida is concerned, well I make good money & our combined income is well above average here at 79K a year… I can now say the realtors were right, I along with all the other lower and middle class people here are now priced out.
To all the realtors out there and housing cheerleaders I admit it, you were absolutely right. We are now finally priced out of the market.
Now I have to ask, whose going to buy all these homes ?
What blows my mind is that there are still people buying and closing on these houses. I guess they dont read much and only listen to their RE agent, but how deaf do you have to be to not hear any warning signs?
From the Voice of San Diego:
(http://www.voiceofsandiego.org/site/pp.asp?c=euLTJbMUKvH&b=278122)
See, it’s different this time! (Remember, this guy is an “expert”)
What is amazing to me is that none of these builders complained that ‘investors’ and ’speculators’ bought 25% of their homes as prices wereappreciating.
Now they find a convenient excuse when prices are dropping to blame it on them? Does anyone believe these assclowns?