Hovnanian posts loses for eighth straight quarter

NJ's largest home builder (6th largest in the nation) Hovnanian Enterprises has posted it's eighth straight quarter in the red due to the current state of the real estate and credit markets according to this report from The Times of Trenton.

It's stock price tumbled in July of 2007. It was trading in the low to mid 20's when it was first listed and is currently about $6.50 after recovering from it's ultra low of $4.99 in early July, 2008. The last dividend check to go out to shareholders was in September of 2007.  "In May, Hovnanian sold $133 million in shares and raised $600 million by selling five-year notes, its biggest one-day sale ever. The company used the proceeds to reduce a $900 million credit facility to $300 million. "

Hovnanian and other large home builders are struggling to sell homes in the worst housing slump in a quarter-century as financing gets tougher for potential buyers and foreclosures add to a glut of unsold properties.

Three-quarters of lending banks tightened credit for prime borrowers in the second quarter, according to the Federal Reserve, and 23 percent fewer home loans will be issued in 2008 compared with last year, the Mortgage Bankers Association said. Foreclosures rose 55 percent in July, RealtyTrac reported.

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Hovnanian reduced its number of unsold houses 46 percent at the end of April from a year earlier and has not bought any land or started any new communities, according to chief financial officer Larry Sorsby.

Back when the loses started for Hovnanian, they started reducing prices by 25% to sell off some of their inventory. According to this report in USA Today the company claimed a "huge success" with their sales efforts, but as we can see now, the results weren't enough to buoy this company out of troubled waters.

One industry expert said of the sale:

"It does suggest that if the market is priced right ... that you can get a response out of potential buyers," said Keith Gumbinger, vice president of HSH Associates, a consumer loan research firm in Pompton Plains. "Two-thirds of a quarter's sales done in a three-day period is pretty good."

So back in 2007 an industry expert believed that 25% off was "priced right". What does that mean for houses today as credit has become tighter, inventory is still high and sales are falling?

Other builders in the nation are not doing any better according to this article on SignOnSanDiego.com.

At Magnolia at Bressi Ranch in Carlsbad, about half of the 25 homes have been built and sold for prices approaching $2.3 million. But a few months ago, builder Barratt American abruptly halted construction on six more, and a seventh stands completed and unsold. Work never started on five lots.

The reason: The locally based builder, like many home owners, lost its financing – in this case, a $125 million line of credit from Bank of America on 10 projects in San Diego, Riverside and San Bernardino counties – and is facing foreclosure.

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These are desperate times for San Diego County's once-high-flying home builders, who ramped up production of ever-more-expensive homes during the 1997-2005 boom.

Today, virtually no one is showing up at model-home complexes. More than 40 percent of buyers canceled their purchases in July, according to one market research firm. And builders and developers have cut their staffs by as much as 90 percent.

Just a few years ago, this turn of events would have seemed shocking. But in retrospect, it is not surprising given the cyclical nature of real estate. Builders, like buyers, just forgot that the good times inevitably lead to bad times. And this appears to be one of the worst.

Cyclical nature of real estate!?!?! WTF?!?!?!?! House prices always go up! Obviously this guy hasn't been listening to the propoganda, I mean (surround) sound advice from his Realtor buddies.