Hovnanian Looks to the Past to See a Brighter Future
Builder’s CEO cites causes for optimism, when comparing current downturn
with past housing recessions.
Source: BUILDER Online News Service
Publication date: November 28, 2007
By John Caulfield

The "steep correction" that the housing industry is going through
currently "is not unprecedented" and shouldn’t obscure positive
economic and demographic trends that will contribute to strong and
consistent housing formation over the next two decades.
That is the message Ara Hovnanian, president and CEO of Hovnanian
Enterprises, the industry’s sixth-largest builder, delivered this
morning to investors attending JPMorgan’s Homebuilding and Building
Products Conference in Las Vegas.
During his 20-minute prepared presentation, Hovnanian showed numerous
charts that favorably compare current market conditions with previous
housing slumps, when some markets were plagued by higher rates of
overbuilding, and when interest rates were much higher than today,
(e.g., 18.45 percent in 1981).
Hovnanian didn’t sugarcoat the severity of the current downturn,
during which his own company reported nearly $500 million in real
estate-related impairments for fiscal 2007. In the fourth quarter
alone, Hovnanian’s deliveries were off 19 percent to 3,969 homes, its
contracts were down 10 percent to 2,781 homes, its backlog declined 30
percent to 5,938 units, and its cancellation rate for the quarter was
40 percent. The company noted that sales had "deteriorated
significantly" in the month of October.
However, Hovnanian sees a "good long-term outlook" for his company and
the industry, driven by "improving demographics" that, he believes,
will help create between 1.8 million and 2 million new households per
year through the next 20 years. During that period, he also expects
large public builders like his company to continue gaining market
share, although during the question and answer period, Hovnanian
conceded that immediate growth plans are on hold. "The wisest thing
to do is to wait for the market to bottom out and stabilize" over a
six-month period.
Right now, Hovnanian Enterprises, like most public companies, is
focusing on strengthening its cash flow. During its latest quarter,
the company reduced its debt by $390 million and lowered its lot
position by more than 46 percent. Hovnanian predicted that the company
would be cash positive this year and next. J. Larry Sorsby, the
builder’s CFO, added that the company would reduce its community count
in 2008.
What worries Hovnanian, though, is still-weak consumer confidence and
"psychology," which is spilling into previously solid markets such as
Houston, where "over the last 90 days buyers have become hesitant," he
said.

From: Emil Lazarian | Ararat NewsPress