Hovnanian Misses, Warns On Cancellations
A homebuilder had some new out after the bell. “Hovnanian Enterprises, Inc. announced today it now expects its 2006 second quarter earnings to be in the range of $1.40 to $1.50 per fully diluted common share, compared with the Company’s previous guidance of $1.55 to $1.80.”
“In addition, Hovnanian revised projections for fiscal 2006 ending October 31, 2006. The Company now anticipates its fully diluted earnings per common share for fiscal 2006 will be in the range of $7.20 to $7.40…lower than the Company’s previous guidance of $8.05 to $8.40 per share.”
“‘Our anticipated results for our second quarter and the remainder of fiscal 2006 reflect smaller year-over-year increases in earnings than we had anticipated, primarily due to continuing production delays in several markets that have postponed deliveries, a slower recent sales pace, higher cancellation rates, more pronounced use of concessions and incentives, and material price increases,’ commented CEO Ara Hovnanian.”
“‘When we release results for our 2006 second quarter on May 31st, we expect to report approximately a 20% decline in net contracts. As discussed above, one factor that has negatively influenced our recent pace of net contracts is the sequential increase in our cancellation rates over the past two quarters,’ commented Mr. Hovnanian.”
“‘Typically our second quarter cancellation rates are lower than those of our first quarter, which was not the case this year. While the number of net contracts recorded in our second quarter increased compared to our first quarter net contract results, market conditions have slowed in certain markets and we did not experience as strong a second quarter sales season as we have traditionally seen.”
“‘We believe the higher cancellation rates, in addition to an increase in resale listings and increased use of sales incentives in certain markets are temporary aberrations as certain markets work through the increased level of resale homes for sale,’ he said.”
“‘As the housing market has continued to cool off from white-hot levels of previous years, we have renegotiated and even walked away from deposits on several parcels of land that we control through options. Approximately $5 million of write-offs of deposits and related costs is built into our revised second quarter guidance.’”
“‘Although we have not needed to use this tactic as much in recent years, we have employed it successfully in prior slowdowns. We are confident that our strategy to control land predominantly with options will allow us to better manage our inventories in a slowing housing market,’ concluded Mr. Hovnanian.”
“The Company is one of the nation’s largest homebuilders with operations in Arizona, California, Delaware, Florida, Georgia, Illinois, Maryland, Michigan, Minnesota, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia.”
“The Company’s homes are marketed and sold under the trade names K. Hovnanian Homes, Matzel & Mumford, Forecast Homes, Parkside Homes, Brighton Homes, Parkwood Builders, Windward Homes, Cambridge Homes, Town & Country Homes, Oster Homes, First Home Builders of Florida and CraftBuilt Homes.”
HOV was off today and is down more after this news. This is similar to what Centex reported last week.
‘As the housing market has continued to cool off from white-hot levels of previous years, we have renegotiated and even walked away from deposits on several parcels of land that we control through options. Approximately $5 million of write-offs of deposits and related costs is built into our revised second quarter guidance’
Following is in khov community in south NJ
Here is a stuck speculator (MLS 4660689 south NJ)
Bought on 03/15/2005 for 254,000 from a guy who bought in 2004 for 197,654.
Here are the reductions during last 4 months. Last 5 reductions shows desperation of seller, may be because his ARM has reset. I offered him 230K.
01/11/2006 310,000
02/23/2006 299,900
03/13/2006 294,900
03/27/2006 292,900
03/30/2006 292,000
04/21/2006 291,900
04/28/2006 291,000
Offer him a pot to piss in and no more!
He’s killing himself slowly with reductions like that. He might as well suck it up and make one big ass reduction, because a million tiny reductions like that do nothing but show the potential buyers his / her desperation to sell (as you were quick to notice), and hence they’ll continue to wait it out. The 900.00 deductions are really nothing more than an insult. That wouldn’t even cover half of one point on the asking price..
I like the $100 deduction from $292,000 to $291,900. Hilarious!
Seriously. Death by a thousand small cuts. What a moron.
The reductions work. We looked at a house that had been listed for $275k originally. They were in divorce/short sale and the house just sat from January to August (prime selling time). Then they cut the price to $225 and they had 2 offers within two weeks. We would have bought for that price, but didn’t want to get into a situation where we were bidding against other buyers. The house closed promptly, so the offers must have been valid.
Just for perspective this was a 3000 square foot house on ~8000 square foot lot in a nice neighborhood with top rated schools in Northern Colorado.
That worked because it was a one-shot 18% reduction. Had the flippers in NJ used this tactic, their price would have dropped from $310K to $254K and they, too, might have found a buyer. Where I am, the only really successful reductions are 15-20%, from a level that wasn’t rediculous to begin with.
This stuff in the media about a 10% correction is total hooey.
ridiculous
Thank you for clarifying my point better than I ever could.
^^What he said.
several months ago, i heard stories like this on the blogs, but i’ve personally heard of several folks i know who are in a tight spot due the the housing slowdown. i’m happy to be right, but it’s going to suck in a few months as the sh*t hits the fan.
It’s going to suck? Au contraire. I’ll be doing a low-baller’s end-zone dance in the smoking rubble of Flipper dreams and FB glibness.
Unless you have your cash in a bank that is too dependent on realestate loans in which case it could be tied up for months or years as you wait for your FDIC check. That is if the bank books were in order at the time the FDIC took it over. Your records are meaningless by the way only bank records count when it comes time to claim your insurance money.
This could really suck.
Interesting Sammy, how do you plan to do much lowballing when commodities crash (where do you think most of them are going), the dollar is inflated (to undo a portion of the prior mistakes), and corporate America downsizes substantially (I hope your work isn’t tied to finance, real estate, retail, commodities, or consumer good production) perhaps telecom will be ok.
It’s pretty hard to slowly or quickly remove a few trillion in market value without substantial economic effects. Best of luck to you.
Why the hell would you offer him mid 04 rates? Can’t you read? Holy sh*t man, go buy a beer if you need to spend money.
230 K was my offer one month back, Every time the seller reduces price I reduce my offer too:)What is very interesting is that although khov has not yet reduced base price but they are giving upgrades of 13K to 18K free which make similar new units from khov around 270K, which is 20K less than speculator’s price.
Fresh 52 week low in after hours!
Uh oh. Is this the final death knell for the HB stocks? Many have shorted these stocks and have crashed against the rocks like so many waves of valiant soldiers. What I love is all of the talk from the Fed idiots saying things like “we’ve nearly reached a normalized Fed policy”. Yeah right. Good luck sticking with that policy as the dollar continues its descent into hell.
10 year treasury had an outside up day today. Yield closed at 5.132%
As posted, Ben is in a box, the US$ is tanking every time the fed talks about ending the interest rate hikes.
The Fed is rapidly losing credibility, IMHO. Everyone can see the nominal-TIPS yield spread blowing out, oil setting new highs practically every day, the Fed’s OWN FAVORITE numbers showing an acceleration in core inflation (to say nothing of REAL inflation, the headline figures). And yet, every day one of these idiot Fed guys comes out and talks about how “well-contained” inflation is. Good luck with that. It seems like after all this time, investors (especially overseas) have decided they’re done with this crap. Bonds are tanking. Gold is flying. The dollar is on the ropes. All of these things are proof positive the Fed is blundering under Bernanke.
Not to pick on you directly, but I’ll start here because you mention Bernanke in your post. Remember, Bernanke hasn’t been in office all that long, and while I have little to no faith in Bernanke, he walked into a great big mess of Greenspan’s creation. Greenspan didn’t get the nickname of “bubbles” for no reason. Heh. He just got out while the getting was good, considering there is really nowhere else to “move” the next bubble to in order to relieve this one.
I must disagree with you. I posted here a couple of months ago that the bond market loves Greenspan becuase he is very hawkish on inflation and does not give a damn what interest rates do to most sectors of the economy. It was for that reason alone in my opinion that yields stayed low.
Now Helicopter Ben comes into the picture and states that they Fed has one notch for interest rates and rates sky rocket.
Why?
Because he could care less about in inflation. He is not a hawk, and the people who pour billions into the bond market are not stupid.
Interest rates are rising.
And they’ll miss again, and again, and again. Trying to catch a falling knife.
Looks like the SuperBowl/ Spring Rally never arrived. Oh Great Pumpkin where are you?
Muahahahahah!!! Nice one.
So it was a Superbowl, Spring, Memorial Day, 4th of July, Labor Day, Thanksgiving rally? WTF?!?! Eventually these Realt-whores will give up all of this nonsense and start browbeating sellers into lowering prices. After all, with no volume, none of them are making any money and they are living off of last years’ bounty.
just wait until columbus day!
Santa Claus, anyone?
All that came with the weather was a surge in inventory.
Ah yes, the Halloween rally. That’s when things will really take off again.
“‘We believe the higher cancellation rates, in addition to an increase in resale listings and increased use of sales incentives in certain markets are temporary aberrations as certain markets work through the increased level of resale homes for sale,’ he said.”
I don’t know if our man here has been watching, but the market isn’t “working through” anything. If that were the case, we’d see the beginning of reduction in inventories. From were I’m standing it looks to me the “snowball” has just begun to roll. I think you’ll be waiting a while, my friend.
“spin spin spin…”
We are doing our “obligatory buy back program” on Wednesday….so we can sell our currrent exercizable options on Thursday!!!! ….turn that mike off dammit
CNN: “Social Security, Medicare to run out sooner”
Will Americans become savers after hearing this kind of news?
“NEW YORK (CNNMoney.com) - The trustees of Social Security and Medicare now estimate that the Social Security trust fund will be exhausted in 2040 while the Medicare trust fund will be depleted in 2018, slightly sooner than previously forecast. “
This is what happens when you give every old person in the country essentally free pills. Don’t tell me they’re not free, they can pay for it out of the social security checks the government gives them too.
Warren Buffets thought on saving from 2005:
Buffett bets $21.4 bln against the US dollar
Sat Mar 5, 2005 04:02 PM ET
By Jonathan Stempel
NEW YORK, March 5 (Reuters) - Warren Buffett … last year increased his bet against the U.S. dollar 78 percent to $21.4 billion, resulting in a $1.84 billion gain.
In his annual letter to shareholders of his Berkshire Hathaway Inc. holding company, the 74-year-old said Berkshire held $21.4 billion of foreign currency contracts spread among 12 currencies. A year earlier, Berkshire had $12 billion of contracts over five currencies.
Buffett is concerned that U.S. policies are causing trade and budget deficits to spiral higher and might cause non-U.S. investors to pull money out of the country. This, he said, will put downward pressure on the dollar, which already trades near lifetime or multi-year lows against several major currencies.
Last year, the U.S. trade deficit rose 24 percent to a record $617.7 billion.
“The evidence grows that our trade policies will put unremitting pressure on the dollar for many years to come,” Buffett said. “As W.C. Fields once said when asked for a handout: ‘Sorry, son, all my money’s tied up in currency.’”
“Unlike other investors, who pile into foreign stocks, Buffett is sticking with U.S. assets and hedging the currencies itself,” said James Armstrong, president of Henry H. Armstrong Associates in Pittsburgh, which invests 18 percent of its $450 million of assets in Berkshire shares.
“Policymakers continue to hope for a ’soft landing,’ meanwhile counseling other countries to stimulate (read ‘inflate’) their economies and Americans to save more,” Buffett said. “These admonitions miss the mark.”
He said the United States suffers from “deep-rooted structural problems” that will cause deficits to balloon unless trade policies are overhauled, perhaps through a new tariff plan, or a falling dollar unsettles financial markets.
This is a large bet, but not an excessive one, said Keith Trauner, a portfolio manager at Fairholme Capital Management in Short Hills, New Jersey, which invests more than 20 percent of its $1.4 billion of assets in Berkshire.
“It certainly in no way can be characterized as betting the company,” he said. “I have no idea whether Buffett is right or wrong. But I wouldn’t want to be in the regular habit of taking the other side of one of his bets.”
How long are contracts, in months? For Buffet to win big-time, would not these contracts he bought in March 2005 had to have been valid well more than a year into the future? Not being facetious — I have no idea how currency contracts work, but from common sense I never would have thought that they’d be for more than a year.
He lost a ton on those bets (currency contracts can be written to order when you toss around $20 billion) and is now betting on foreign equities.
If inflation keeps ticking upward you can rest assured the next calculation concerning the solvency of SS & Medicare will present a much more dire picture. BB knows this too. It’s bound to be on his radar, along with the slide in the dollar when he sets rates. The slide in the dollar may be tough to stop 1/4 pt at a time…
PSSSSSSSSSSSSSSSSTTT!
There is no lock box for Soc Sec or MEdicare…
And while I am truth telling…FDIC doesn’t exist either.
Our money is born from Debt!
If the idiots in Congress give AMNESTY (Kennedy-McCain, Frist, Harry Reid, Specter, Graham) then it will implode in 6 years (just a guess).
All of these forecasts assume a continued “goldilocks” economy, too. The coming depression will kill Medicare outright, and put Social Security on life support.
Its the great unwinding of the building machine…What happens next is the beginning of the real pain…The builders are unloading their options…The land goes back to the dairy farm oporator….Whatever land that has infrastructure in place will be completed with smaller crews, at a slower speed, for less money…Layoffs will now follow with accelerating speed in the construction trades…
Now we will see if Thornberg’s (UCLA) prophesy has merit…
I can confirm one local in town who has had his deposit refunded. This guy was going around town telling everyone he was a multi-millionaire. OOOPS. Make that $100k non-refundable deposit and no farm income for a year.
Don’t tell me, this is a Bakersfield hick farmer - right?
Yes. I will say, however, that several cashed out to the tune of tens of millions of dollars. and a lucky few cashed out hundreds of millions. UGH
‘The land goes back to the dairy’
Great point. This will actually increase available raw land for sale. And you can bet the farmer will cut his price to move the property as he may not even be around anymore.
YUP…..
Absolutely! It’s already happening….especially in Pinal County. The basis for some of these farms/ranches is zip, so they can discount til the cows come home. Hm…wonder what this will do the the Great Arizona BLM Land Sales???
“farmer will cut his price to move the property as he may not even be around anymore.”
We’d better save those farmers. We’re gonna need them for ethanol production. Saw Tim Russert’s Meet the Press this Sunday discussing how Brazil got their sugar cane based ethanol program up and running in 3 years. No one on the panel was able to tell him why it was so impossible for the U.S. to do the same.
That’s because the panel wasn’t made of scientists. Sugar cane is essentially the most efficent plant at converting sunlight to sugar, corn is markedly less so. Ethanol wouldn’t be close to competitive with current gas prices if it weren’t for about $1.50 in tax differentials (Ethanol doesn’t store as much energy as gasoline so you get fewer miles from a gallon of it).
Nice little comparison chart from PM:
http://media.popularmechanics.com/documents/Fuel_of_the_Future-e852.pdf
SCDave — probably read it but forgot — what was Thornberg’s prophesy?
Chip;…See the UCLA September 05 Forcast….
Regarding HOV, it’s just like on the freeway: Hope you don’t find yourself in the HOV lane alone. Big trouble.
I hope this hasn’t been posted, but stephen roach has gone from bear to bull, sort of.
http://www.morganstanley.com/GEFdata/digests/20060501-mon.html#anchor0
“Another important part of that solution is the end of the US housing bubble and the wealth-dependent excesses of consumer demand this bubble has supported,” Roach writes. Is he being ironic? If you expect it to “fade” into a bitter pill of fiscal prudence, why would you call it an asset bubble at all?
I took that article/speech to mean he is bullish about the world economy and its better-than-past collective ability to balance inflation, currency values and markets, but I did not see anything at all to proscribe the sharp correction we face in real estate values. Moreover, I think he is, in effect, writing off the real estate losses as the just desserts of gamblers and fools who tried to prifit too easily or who were suckered into toxic loans they will not be able to hold.
Good article. More complimentary of Chinese “management” and foresight than I remember seeing before.
this summer should be like 1990
still time to short BECN = pin action
I love the graph of the DJIA today on marketwatch.com. Things are swimming along nicely in the black until word gets out that Ben Bernanke told a reporter that no, you morons, “I’ll maybe think about pausing increasing rates sometime” doesn’t mean “one more hike and we’re done.”
Ker-klunk. The graph looks like it walked the plank. And the HB’s got beaten up but good.
Ben B needs a tutorial in Greenspeak from the former boss…
Nah, I hope, at the very least, he doesn’t do the Greenspeak…what a bunch of linguistic bahooey.
Although it’s kinda funny that Ben B. thinks he was “misunderstood”…like we’re in group therapy or something. Well, maybe. We are. In group therapy.
“In addition, Hovnanian revised projections for fiscal 2006 ending October 31, 2006. The Company now anticipates its fully diluted earnings per common share for fiscal 2006 will be in the range of $7.20 to $7.40…lower than the Company’s previous guidance of $8.05 to $8.40 per share.”
So far my guess that the major Wall Street HB profit streams would look like a declining annuity are borne out by the data. We can safely assume that their projections also do the best legally possible job of putting lipstick on the pig…
YES!!
A while back we did a post that talked about how HOV said things where okay and would stay that way. This is a great catch! After reading Ben’s post, check this out this old Bubbletrack post to see how things have changed!:
BubbleTrack post with comments on HOV
“http://www.sun-sentinel.com/business/realestate/sfl-zpnhousing28apr28,0,3134645.story?coll=sfla-busrealestate-headlines”
LEREAH STRIKES AGAIN
This article in the Sun Sentinel in Florida tells about a meeting Lereah had in West Palm Beach for realtors saying the bubble wont bust. However at the end of the article one realtor implies that Lereah is full of it as conditions are really bad now in the market.
I watch other industries miss by a penny ,and get hammered …it’ll be interesting tomorrow, now one more has missing the mark.
Aetna, then Microsoft lost 32B the other day…Seems there is trouble a brewin’.
http://photos1.blogger.com/blogger/2654/1384/1600/unsold-homes.3.jpg
This is a no Sh!t real miss. This is bad.
BubbleTrack.blogspot.com
Roach went bullish in early 1999, when the last of the perma bears goes Bullish- the peak is near for the economy.
I haven’t read what he said recently, but he predicted the US bond market would go higher just as it started to tank.
In my 2-minute read, he’s basically saying that he thinks it’s good that the Fed is tightening, and that globalization will lesson the chances of that putting us into recession. He’s pretty clear that he is happy the Fed is trying to control asset bubbles.
Quotes:
“This is a delicate operation, to say the least. We are in the midst of what could well be the mother of all liquidity cycles.”
“Another important part of that solution is the end of the US housing bubble and the wealth-dependent excesses of consumer demand this bubble has supported. For that reason, I am also encouraged that the froth now seems to be coming out of the US housing market”
BubbleTrack.blogspot.com
Most of the miss is already in teh stock price. It can’t keep going down every day on the same news, namely “housing market is bad”.
OTOH why wouldn’t steel and copper stocks start getting hammered? Nothing but blue skies for them. Manufacturing strength across the board.
You can sell steel and copper to China. But it’s kinda hard to jack up a Chino McMansion and ship it off to Shanghai. American homebuilders do their business in…well, America. And if the American homebuyer’s tapped out, the builders can’t easily find replacement customers.
“Most of the miss is already in teh stock price”
What happens when earnings slow to a crawl, or turn into losses? If that is what investors believe is going to happen, the stock price can keep going down until it reflects true future earnings.
- Saves
Most of the miss means investors are already expecting earnings to slow to a crawl or likely go negative. That they are doing it slower than expected can occasionally be good news.
I’m not claiming it is in this case, but that expectations are funny things, and it generally takes a long time for most folk to get their head around why good news is more likely to lead to a price decline and bad news is more likely to lead to a price increase. Keep thinking of investors as an even more manic Woody Allen and you are close.
Check this out:
http://realtytimes.com/rtapages/20060427_outlook.htm
Inventory’s down–oh wait, well there were more homes for sale, I mean the unsold inventory index is down, because we had to make up something that went down to make ourselves feel better…
I think I’m going to be sick.
In one sentence this woman accurately depicts everything taht is wrong with our economy.
“There’s still nowhere else that’s as safe to put your money as housing. As long as the stock market teeters with ignorant traders [OMG! she means buyers], management chicanery and overpaid CEOs, housing looks like a tall gilbralter of safety in a turbulent financial sea.
First, unlike stocks where you have to pony up $1 for every share you buy, homebuyers can borrow up to 100 percent of their purchase price (depending on their credit.) And there’s little penalty for long-term gains. Unlike gains on stock sales, if you’re lucky enough to have them, the taxable amount can be anywhere from 15 percent to 35 percent. All they have to do is live in their homes two out of five years of ownership, and homeowners can sell the property and pay Uncle Sam nothing in capital gains (up to $250,000 for singles, $500,000 for married couples.) So you can borrow the money to buy an asset that you can sell tax-free after only two years. What a country!”
hmmm… CASH is paying over 4%…
BubbleTrack.blogspot.com
6 month T-Bill rates are around 5%!
Sorry, I should have said paragraph…
no, you were right the first time.
long, run-on sentence
And it’s “Gibraltar,” not “gibralter.”
Yet another indication that RealtorsTM are simply not professionals, as they style themselves. They’re glorified shopgirls. At the open house I attended on Sunday (because my young daughter and son like to rampage through $1.3 million empty McMansions), the nice old lady showing the place told me prices in Orange County will never go down because of all the people moving here from other states. She didn’t believe me when I told her OC has net negative domestic migration — and that the international migrants responsible for keeping population growth positive (along with natural increase, a large part of which consists of the immigrants’ own children) aren’t likely to be buying many million-dollar houses.
She quickly decided talking to my wife was a better idea.
Incidentally, for Eastside Costa Mesa followers, these are the three big new spec houses on Orange Avenue across from Lindbergh School. Busy street, no front yard, borderline neighborhood (lots of mixed housing and residual white trash from before gentrification hit — before you call me a snob, check the Megan’s Law registry to see the alarming number of registered sex offenders in the area), and they’re asking $1,325,000. Down 5% now from the original $1,389,000, but still. They were finished in February and haven’t moved.
Intellectually dishonest article. Notice how she states the year on year median increase for resales but fails to mention the year on year median drop for new houses? And her consistent mixing of month on month and year on year stats to create a positive spin?
Believe nothing, no matter where you read it, or who has said it, not even if I have said it, unless it agrees with your own reason and your own common sense. Re: the NAR and CAR brain washing machines.