Hovnanian Warns Amid Cancellations, Concessions
Hovnanian has some numbers out. “Hovnanian Enterprises Inc. on Wednesday said fiscal second-quarter profit fell versus a year ago as three months of slower sales, higher cancellation rates, and greater concessions took their toll on earnings.”
“Second-quarter 2006 results included land-sale profit of 18 cents per share and write-offs of $5 million from land option deposits Hovnanian decided not to exercise.”
“During the quarter, the number of net new contracts, after cancellations, including joint-ventures fell 18.5 percent to 4,342, with the Southeast and West seeing the greatest declines. The value of the contracts fell 18.2 percent from a year earlier.”
“‘As many of our housing markets have continued to cool off..we have renegotiated option contracts on numerous land parcels, primarily those negotiated within the last twelve months that no longer adequately reflect the pricing and returns available in the current sales environment,’ CEO Ara Hovnanian said.”
“‘We also walked away from about $5.6 million of deposits on land parcels that we controlled through options when we were unable to successfully renegotiate the purchase terms,’ he said.”
Some housing bubble news from California. “Total building permits issued for single-family homes in California were down about 25 percent in April compared to April 2005, while total permits for the first four months of the year were down about 18 percent compared to the first four months of 2005, the California Building Industry Association announced today.”
“The number of single-family building permits dropped the most in Napa (-71.4 percent), Yuba City-Marysville (-61.3 percent), and Salinas (-60.7 percent) metro areas in the first four months of 2006 compared to the first four months of 2005, the association reported.”
“Residential building in April edged up a slight 2% to a seasonally adjusted annual rate of $688.7 billion, according to McGraw-Hill Construction. With homes taking longer to sell, the inventory of new homes for sale has been rising, contributing to what has been so far a modest slowdown for construction.”
“April included the start of 18 condominium/apartment projects valued at $50 million or greater, with 8 of these projects located in Florida. Robert Murray added, ‘Although there’s emerging concern that some markets are being overbuilt, especially in Florida, the volume of new multifamily construction to this point in 2006 remains very strong.’”
From Reuters. “America’s booming housing market has clearly slowed, and that cool-down could last at least another year before homeowners see a pick-up in the pace of house price increases again, economists say.”
“Economic data on mortgage applications, sales and construction all point to consistent and sustained easing in the market in 2006.”
“Sales of newly built homes are down too versus a year ago, according to the Mortgage Bankers Association. That trade group’s data also show fewer people are applying for mortgages. In fact, purchase applications year to date are down 10 percent from the comparable period in 2005.”
“‘We’re running at about 2003 levels,’ said Mike Fratantoni, senior economist at the MBA.” “The number of houses up for sale offers a telling sign too, said economist Jeff Taylor. Indeed, inventories are soaring. The number of new homes and existing houses on the market both hit records in April, according to the National Association of Realtors.”
“At the current sales pace, the number of homes up for resale amounted to a six-month supply, the largest in more than eight years.”
I’ll update this if more HOV news gets out. Here is some detail. Check out the growth estimates at the bottom.
HOV warned. Looks like the HBs will rally big tomorrow.
That’s how it has been going the last couple of months.
Funny, you took the words right out of my mouth!
But this time is different.
HOV up .47 in after hours trading. Rally has begun already.
What can one conclude from these upside moves on bad news, other than that the stock market has gone berserk.
The short sellers are cashing in, I did
they can only go down so much because their P/Es are so low (6x). Sure business sucks, but the stock market has been telling us for some time that these companies high earnings in 05 and 04 were not sustainable.
In 2 years many of the homebuilders PE will say N/A.
I agree. History is littered with stocks with low P/Es that then went out of business. A low P/E is a good reason to buy only if there are realistic prospects for growth in E. The builders have no such prospects.
perhaps, but for now the low pe is supporting the stock.
The press release by HOV is full of crap about how things are going to improve in the near future. WTF?
Completely understandable. The HBs are merely following the decline down just like the floppers and everyone else. They “learned” from the last time and are fully prepared for the last time.
Depends on what you mean by “improve.” Next quarter HOV et al will have shed thousands of employees, divested land options, torn up suncontracts, slashed divedends, etc.
Trust me, the most common excuse will be “no one could have forseen the speed of this decline.”
Robert Cote’
“no one could have forseen the speed of this decline”
We must have been posting at the same time but amplify on that if you would. I’d been fully prepared to not “compare apples to oranges” given that RE is supposedly more “stable” an investment than the stock market. We’re only a few months past the peak and it already looks like every man for himself. Believe me nobody wanted this to be over more quickly than myself but has the pace suprised you (and others) as well?
This time there’s so much more at stake that even people thinking of buying are scouring the internet and anything else for information. I am the only person left not surprised by the speed. One of the reasons for the rise was liquidity. Liquidity works both ways. Add to that disemination and we already have some amazing numbers for May. Down in SD I am are looking at
http://bubbleinfo.squarespace.com/
where JIm the Realtor (a good, honest realtor, really) is tracking closings.
RE -used- to be “sticky.” No longer, the lubricant works on penetration and withdrawl. Yes, I am being obscene, consider the subject.
He provides pretty good information, but the way the May Figures look currently for SD is kind of contradictory to the information he just posted. I think those figures are just for North County. Once the local papers start writting anything about the real state, of local real estate the ball will really get rolling down hill fast. Most of the people I talk to are still clueless. I try to be polite, but it is becoming hard to bite my tongue.
Robert/DinOR,
Gentlemen & fellow blog-mates, I must respectfully disagree on this point –at least as far as CA is concerned. Most cities/counties have yet to even post YoY median price declines. And yes, I’m aware the median can be skewed by better quality homes selling for same price vs. crappy homes a year ago –not to mention outright CAR/NAR data manipulation. Even so, the RE market here has not exactly turned on a dime, and is tracking at roughly the same pace as the last crash (1990-96).
I see no reason to expect it will hit bottom any faster than last time. Yes, we have the Internet, and as the saying goes, “garbage in, garbage out”. Most people I know who are interested in buying are not aware of this or any other anti-Bubble sites (unless I tell them about it). The Sheeple get the same crap/Realt-whore propaganda from Industry-controlled sites on the Internet that they used to get from newspapers & TV. Net result: same. I expect the market to hit bottom sometime between 2008-2012, no sooner.
Robert/DinOR,
Gentlemen & fellow blog-mates, I must respectfully disagree on this point –at least as far as CA is concerned. Most cities/counties have yet to even post YoY median price declines. And yes, I’m aware the median can be skewed by better quality homes selling for same price vs. crappy homes a year ago –not to mention outright CAR/NAR data manipulation. Even so, the RE market here has not exactly turned on a dime, and is tracking at roughly the same pace as the last crash (1990-96).
I see no reason to expect it will hit bottom any faster than last time. Yes, we have the Internet, and as the saying goes, “garbage in, garbage out”. Most people I know who are interested in buying are not aware of this or any other anti-Bubble sites (unless I tell them about it). The Sheeple get the same crap/Realt-whore propaganda from Industry-controlled sites on the Internet that they used to get from newspapers & TV. Net result: same. I expect the market to hit bottom sometime between 2008-2012, no sooner
I agree. I just overheard one of my 25 year old coworkers say they put in a bid for a 16 year old condo in SD. It’s a fixer upper. They were going on about what a great deal it was. Clueless…utterly clueless.
HARM,
You are correct. The median will “stick.” Indeed, the median is expected to continue to rise as the market shifts. Nothing to see here. The dynamics of a bubble require “froth.” Y-O-Y won’t generally appear until Oct ‘06 over Oct ‘05. Fully in the pattern.
Just wait until the May numbers are released for SD, there should be a YOY decline. It will be interesting to see how the NAR spins that one.
Ummmm, I’m a little confused “condo” - “fixer upper” exactly how does that work
You know the typical granite counter tops, stainless steel appliances, and all of the other stuff that will not make any difference when the condo market falls out of the sky. With a BAAAAANNNNGGGG
Condo - It don’t mean a thing if it ain’t got that bling.
Yea, I don’t understand the thought process behind it. it doesn’t increase your value per se because your not adding to the size or dimensions of the space. You’d get the same amount of money with paint and vinyl in reality. What ever happened to the thought that condo’s were temporary.
Believe me, when I overheard her, I had the same reaction. Apparently there were a lot of repairs required for the kitchen. It was formerly rented and the renters trashed it.
I am one who believes that the plunge will be steep and soon. By the end of next year, prices will be down on the national level and down 50% or more in several of the hot markets. Phoenix, SD, Sacramento, LV, NoVa and DC, Boston and Southern FL.
We are much more vulnerable now than at anytime before. The “Free” money has placed a huge number of people in unsustainable leveraged positions. Foreclosures will amaze by the end of this year. ARMs readjusting, general slippage in the economy, continued wage give-backs, and major slippage of the stock market are all in prospect…and soon.
My WTF was somewhat rhetorical. Yes the stock is down 60% in the last year. Yes the market knows this stock is DOA! However, for them to continue to say things will improve is either optomism (based on insider selling) or LIES! We all know how this book reads. Its like a bad sitcom, you know the outcome after the first act. I guess if they were to come and say- We’re FUCKED. Sell our stock know, there would be a serious “run on the bank”.
Crispy,
Why is it that this doesn’t suprise me all that much? I guess there’s math, the new math and then there’s RE math. I know I’ve said it before but so much of the “stickiness” and “orderly” comments we’ve had to endure when compared to the almost instantaneous reactions of the stock market have failed to materialize. To date I’d have to say right now, given that the fall of 2005 is generally acknowledged as the “peak” for RE it is outpacing the stock market crash. Am I wrong here?
There’s no such thing as an inventory build for at the market orders in the stock market. Few people still see real estate as a market. Listent to the way the talk, it’s an entitlement and an earning. Like cashing a check that’s already written out. That will change soon enough, or leave them stranded for 10 years like the 80s condo-clingers who finally got to sell at the end of the 90s. Some of the clingers here in Calif. had to wait until 2002 or so to break even. Yes “even”.
“There’s no such thing as an inventory build for at the market orders in the stock market.”
There are inventory builds on days like October 19, 1987 (Black Monday). What happens is that the gap between bid and asked prices widens to a point where no sales can take place, and consequently prices go into a free fall. This is what is happening in many parts of the the housing market, IMO. It is hard to know the actual market value when inventory keeps piling up and very little is selling.
Right now IMO the people that are buying are going to regret it. The only way they will not lose money is by being able to stay in the home for 15 years or more, and they got into a fixed rate program. Still when they see house prices drop, they might consider just handing the keys to the bank.
GetStucco is on the money again - who really knows where the values are right now. Buyers get tired of looking and by the end of summer sales should be close to zero as sellers hold out to the end. Or dump.
And dump they will. We’ll see the stories of pigs getting slaughtered around the holidays this year - probably around 2001 prices like what was said the other night.
The buyers who previously gave up will hear “2001 prices”, and jump back in next spring.
It’s been the pattern the last couple of years.
You have a lot better luck with your low-ball offers around the holidays - if you’re a seller between Thanksgiving and New Year’s, you gotta be desperate.
Thanks Robert Cote for the mention
Ah, the old “second half recovery” chant that we saw so many times in hi-tech 2000-2002 quarterly reports during the collapse of the bubble.
HOV says tonight that for FY 2006 they will have $7.20-$7.40 per share. Q1 was $1.25 and we have $1.55 here in Q2 (which includes March and April) for $2.80 so far. That leaves $4.40-$4.60 for Q3+Q4 — 50% better than Q1+Q2.
NFW, I say! I’ll be hugely short on July 31 in anticipation of another pre-announcement warning for Q3 just like they did on May 2 for Q2.
That said, it’s anybody’s guess which yahoo headline gets the most play tomorrow. There’s something for everybody here:
Hovnanian Enterprises net falls 2.3%
at MarketWatch (Wed 6:39pm)
• Hovnanian Tops Tempered Views
at TheStreet.com (Wed 6:24pm)
• Hovnanian 2Q Profit Drops 4.9 Percent
Me, I can’t back off my recent table-pounding for a relief rally, so I go with “tops tempered views”.
YES!!!!!! This is what I mean. LIES! NFW!!!
Wow, it’s even more of a Hail Mary than I thought:
“We expect earnings for the third quarter to be in a range of $1.40 to $1.50 per fully diluted common share,” Mr. Sorsby continued.”
Knock that $1.40-$1.50 for Q3 off that $4.40-$4.60 for Q3+Q4 and that leaves some very heavy lifting of $2.90-$3.20 for Q4. Bottom line, they want us to pretend that Q4 will be twice as profitable as Q2, which includes the spring selling season, and, undoubtedly, interest rates at least half a percent lower than what we’ll see by fall.
Wow. I play my cards right and sometime in the next five months I’ll be completely short the day HOV admits reality and opens down 10% from its previous close.
aw crap the old italics problem again, let me try to fix it howzat
Bakersfield inventory update for May:
Increase of 15.67% x 12 months = 188.09% Annualized
c&c–er, not if I get your numbers correct. If it went up 15% in one month, then annualizing that is…..473%. Damn that compounding!
From the update:
‘Second-quarter 2006 results included land-sale profit of 18 cents per share and write-offs of $5 million from land option deposits Hovnanian decided not to exercise.’
‘During the quarter, the number of net new contracts, after cancellations, including joint-ventures fell 18.5 percent to 4,342, with the Southeast and West seeing the greatest declines. The value of the contracts fell 18.2 percent from a year earlier.’
‘During the quarter, the number of net new contracts, after cancellations, including joint-ventures fell 18.5 percent to 4,342, with the Southeast and West seeing the greatest declines. The value of the contracts fell 18.2 percent from a year earlier.’
- If the net number of sales in 1st quarter of 2005 were 18.5% higher or 5,328 and the values of the contracts for the same period in 2006 dropped 18.2 then that could mean more than a 33% drop with the Southwest and West reflecting a higher percentage losses.
FrankSF,
According to HOV’s release, the Southwest region net order rate was up 1.1% and the West region say a 41% decline. BUT, and here is the BUT, these are not “same store numbers”. While orders fell 18% overall for HOV, they opened up many more communities. I saw one analyst estimate that sales per community were DOWN 40%. Let me say that again, one analyst estimated sales per community for HOV down 40%.
How can sales be down that much, inventory rising, and yet HOV expects a better 2H. HA!
the yalso have had at least 3 aquisitions that mask the south part
Another update:
‘As many of our housing markets have continued to cool off..we have renegotiated option contracts on numerous land parcels, primarily those negotiated within the last twelve months that no longer adequately reflect the pricing and returns available in the current sales environment,’ CEO Ara Hovnanian said.’
‘We also walked away from about $5.6 million of deposits on land parcels that we controlled through options when we were unable to successfully renegotiate the purchase terms,’ he said.’
‘We also walked away from about $5.6 million of deposits on land parcels that we controlled through options when we were unable to successfully renegotiate the purchase terms,’ he said.’
Well, good thing that problem is completely taken care of.
There is the problem of more land now freed up to go back on the market.
I was being sarcastic. Land write-downs are just beginning, but they report it as if it is a one-time washing their hands of it.
I hope they left the keys in the mailbox
Ok, HOV has maintained $7.20-$7.40 EPS this year.
Let’s look at the numbers:
Q1 $1.25
Q2 $1.55
Q3 est $1.45 (midpoint)
Q4 $3.00 (required to make $7.25 for the year!)
For reference Q4 2005 they got about $2.50.
How can anyone pity people who buy this stock? This is unbelievable.
YES!!!!!! This is what I mean. LIES!
If you didn’t know the underlying story, judging strictly from sentiment indicators, the HBs would be a buy. We here are taking a very macro, systemic view on the HBs. From a pure play market stand-point, the odds would seem to favor longs. Our macro view is NOT held by the majority of stock players.
So you’re saying the best time to buy is when everyone else does.
Does that mean I should sell when everyone agrees as well?
Hold on, there’s a line forming over by the cliff.
You spend to much time on this blog. General Wall Street sentiment is very negative on the homebuilders and has been for a long time. Wall Street doesn’t hire NAR economists.
I do spend too much time here but I don’t understand. At first you seemed to say sentiment was positive (the majority does not share our view) and then you say sentiment is very negative.
I think sentiment is still very positive on the HBs. I watched CNBC when Toll released it’s numbers and got the 5.5% spike. They had the pro- and the con- and the CNBC guy kept agreeing with the pro.
Go to stockcharts.com, look at the weeklies and dailies for the homebuilders (TOL, HOV, PUL, etc), and decide for yourself (the classic head-and-shoulders formation). Better yet, get a subscription and look at Chaikin money flow to see the “smart money” selling to the “dumb money”. If you trade the one-hour or less, that’s a different story.
“You spend to much time on this blog.” This blog is one of the few places free of smoke, mirrors, and spin. I think of this as an old-fashioned “men’s smoking parlor” where stimulating conversation is shared and opinions voiced.
Last summer I was transferred to Seattle and did not know about “the bubble” as I lived blissfully unaware in a small town in TX where nothing ever changes much. When I got to SEA I thought the world had turned upside down and could not figure out why a professional with a 6 figure income could no longer afford a home. But I had enough common sense not to buy into “madness”. Then I found this blog and the whole problem was revealed. In an era where the media is “owned” by powerful economic interests, Blogs are quickly becoming the underground “free press”.
Is it any wonder so many of us spend so much time on this blog?
Hey, it’s all Ben’s fault that we need our “daily fix”….:-)
sebastopol camedian price was down 28% yoy in april.april 05 was skewed upward by two sales of high end sales…not 29% worth however.25 sales this april..prices down about 50k for a normal house.i expect this downturn to be different than 89-90 due to the high percentage of short term financing with exotic loans.many can not refi,and when looking at loan application #’s please remember these are applications,not approvals,people who qualified for an arm last year or two at 55% debt to income ratios aren’t able to go to a fixed product…they can not wait for lower rates,or pay their note.maybe we can get a special group “darwin award” for these people…..sorta like a presidential unit citation?
OT. I found a REO that just came to market today. This beaut is a whopping 660sf on a huge 4600sf lot. Last sale price was 499K on 3/7/06 (probably used for mortgage fraud) and already it is back on the market as a REO…only for 60K more! I e-mailed the realtor and asked what improvements were done to it in the last 2 months to warrant a 60K increase to this POS in this declining market (I left out the POS in my mail). He wrote back with a chipper, “if you’re interested, please call me for a showing! have a GREAT day!!!”. I wrote again and asked him again…and no response. Even the banks are flippers now here in SoCal with their REOs… I’m so proud to live in Clownifornia.
http://tinyurl.com/r774y
Sometimes the bank tries to recoop its costs of retaking the property?
‘we have renegotiated option contracts on numerous land parcels, primarily those negotiated within the last twelve months that no longer adequately reflect the pricing and returns available in the current sales environment’
That is, land prices have fallen in the last 12 months.
wait, cote was just telling us how it’s different this time for the builders? now he’s trying to cop his way out?
“Total building permits issued for single-family homes in California were down about 25 percent in April compared to April 2005, while total permits for the first four months of the year were down about 18 percent compared to the first four months of 2005, the California Building Industry Association announced today.”
Decrease in supply is not good. we need more permits and more housing to be built. there’s lot of land - its just regulation which prevents housing from being built. write to local county officials to issue more permits. and to federal reserve to stop prinitng easy money and devaluating your dollar savings. this and educating potential buyers about price/rent ratios is least people can do!
June 01 2006 HOV 33.27 +1.44 (+4.52%) High 33.43 Low 31.99 Open 32.52 Prev Close 31.83
YEAH BABY YEAH! Oh what a perfectly-executed Operation they did with this today. A gap up, the low of the day at 10:28, a carefully-handled rise, never parabolic, to the effective high of the day right around noon, flatline within 1% on either side all the way to the close.
Look for two more days of rises here — a day like this means they’re going for margin calls on anybody who was short last nite.
I’ll say it again, 38.62 on June 7.