Home builder Hovnanian Enterprises reported an after-tax net loss of $80.5 million in the quarter ended July 31 — a fourth consecutive quarterly loss for the company.
The third-quarter loss amounts to a drop of $1.27 per common share, and compares with earnings of $74.4 million and $1.15 per fully diluted common share in third-quarter 2006.
Ara K. Hovnanian, company president and CEO, said in a statement that he expects the “challenging environment” in the housing market to persist through most of 2008.
“The conditions leading into this housing downturn are different from those we have seen in past slowdowns throughout the 48 years that we have been in the business,” Hovnanian stated.
But the company is taking similar steps to address this slowdown, he said. “We are concentrating on reducing overhead expenses, and controlling land and land development spending, primarily through the decisions to renegotiate or walk away from options.”
He added, “Credit tightening in the mortgage market has reduced the number of qualified home buyers; existing-home inventory levels remain persistently high in many of our markets; and buyer psychology has been negatively impacted by a steady stream of news related to falling housing prices, foreclosure rates and mortgage availability. In light of these negative influences, our sales pace fell further in many of our communities, and we reacted by offering further price concessions and incentives.
“Since the end of our third quarter, the tightening of lending standards in the mortgage market has extended beyond the subprime market and is now impacting jumbo mortgages and further tightening of Alt-A loan underwriting standards. This is leading to a further reduction in the universe of qualified buyers for our homes,” he stated. “Inventory reduction and cash flow are our foremost priorities.”
The company sold 2,539 homes in the third quarter and delivered a total of 3,179 homes with a sales value of about $1 billion. Deliveries dropped 31.1 percent in the third quarter compared with 4,623 in third-quarter 2006.
Revenue totaled $1.1 billion in the third quarter, down 27.1 percent compared to third-quarter 2006.
The number of net contracts for the third quarter of fiscal 2007 declined 24.2 percent to 2,539 contracts compared to the prior year’s quarter.
Hovnanian’s contract backlog as of July 31, excluding unconsolidated joint ventures, was 7,126 homes with a sales value of $2.5 billion, down 31.1 percent compared to contract backlog with a sales value of $3.6 billion at the end of third-quarter 2006.
For the full 2007 fiscal year, the company expects to deliver 13,200-13,800 homes, excluding deliveries from unconsolidated joint ventures.
The company had 449 active selling communities on July 31, 2007, excluding unconsolidated joint ventures, compared with 436 active communities at the end second-quarter 2006. The company’s contract cancellation rate, excluding unconsolidated joint ventures, was 35 percent, compared with a rate of 33 percent in third-quarter 2006 and a rate of 32 percent for second-quarter 2007.
The company projects positive cash flow of $175 million to $250 million for the fourth quarter and maintains its projection of $100 million to $400 million in positive cash flow for fiscal 2008.
The average price of Hovnanian homes fell from $328,029 in third-quarter 2006 to $327,960 in third-quarter 2007, the company reported.
Average prices dropped 11.5 percent in the West while rising 22.7 percent in the Midwest, 9 percent in the Northeast, 3.9 percent in the Southeast, 3.3 percent in the Southwest and 0.7 percent in the Mid-Atlantic regions in the third quarter compared to third-quarter 2006.