Hovnanian: 40% Cancellation Rate
Submitted by
CalculatedRisk on Tue, 12/18/2007 - 9:04pm (27 comments)
Shopping at Amazon?
Wait! If you click on the Amazon banner link at the top of the page first, HCN will get a percentage of anything you purchase for 24 hours!
Open predictions
Our local book authors
User login
Who's online
There are currently 25 members and 148 guests online.
Currently online
Recent Recommendations
Sorry for the repost, but I wanted this sentiment to be stated.
Even with the most polar disagreements on this blog, it is encouraging to me that people are giving these issues so much thought. I hope all of you can vote.
I hope all of you will vote for RP.
O.T. Mitsubishi UFJ Financial Group Inc. rose on speculation the country's top three banks will refuse a request by U.S. counterparts to invest in a bailout fund.
Japanese Stocks Decline After Government Cuts Growth Forecast - Bloomberg.com
Regards,
A tremendous inventory problem, and lots of stickiness wrt pricing. Combine this with the enhanced underwriting standards (or should I say the reappearance of standards) and it should be an interesting 2008.
https://www.wellsfargo.com/downloads/pdf/com/research/california/socal122007.pdf
"The number of obstacles now stacked against the Southern California consumer is truly daunting. This perfect storm is taking on biblical proportions. The ARM resets, combined with falling home prices and tighter mortgage underwriting standards, are laying waste to household balance sheets, triggering an avalanche of mortgage defaults and foreclosures."
Wells Fargo is predicting a 10.1% decline in housing prices for So. Cal. in 2008.
Wells Fargo is predicting a 10.1% decline in housing prices for So. Cal. in 2008.
You'd think if they were going to invoke the bible they could have got that prediction accurate to another decimal place: 10.13% or something.
OT (kinda): Magliano and other industry analysts expect auto sales to be hit hard as the housing downturn continues to drag the economy down.
Its going to be a rough year, Magliano said. The issue is we are getting battered by a really bad economy right now, so the consumer will pull back and get more cautious ... All that means interest in buying [vehicles] will drop through the floor."
Maybe they should try a "Sale of the Millennium"
When do the 2-4-1 sales start?
They lost $7.42 per share vs. $1.49 expected ... now that's blowing away expectations! HOV also cancelled their dividend for all of '08. Talk about throwing their shareholders under the bus!
This news might be the catalyst to spark the final panic downleg selloff in homebuilder stocks. Honestly I cannot fathom why anyone still long HOV, BZH, TOL or others wouldn't just throw in the towel and take the capital loss for '07.
--
"I hope all of you can vote."
I refuse to vote and give any crook a mandate as the evildoer Bush claims he got for his criminal policies. Only a crook has the chance to be the US President or the Fed Chairman. Crinimal financial gangs and corporate crooks will make sure of that.
Sorry for my vote and financial support of Bush during 2000,
Jas
Sorry for my vote and financial support of Bush during 2000,
Yeah, I always thought Bush and Princess Diana had a lot in common. Seen from afar and out of power they looked very attractive and okay. Once in power, when they unmasked, one found out they were semi-psychotic messes bent on causing nothing but trouble.
What surprises me most is not the 40% cancellation rate, but that 60% of people actually went ahead with their closings!
Hovnanian does most of their business here in the I-95 corridor from NY to DC. The percentage of people I speak to who honestly believe their house is worth now what it was 6-12 months ago (when, presumably, most of these sales contracts were signed) sure ain't 60%. Six percent is probably more like it.
It's one thing to refuse to sell a house you live in because you won't face the reality of falling prices. But to actually go ahead with BUYING a house that's empirically worth less - probably significantly less - than you're offering to pay? Wow.
HOV likely had negative net sales for October. The CEO said November was terrible as well. The headlines only grab his comments that December was an improvement over October and November.
I read a funny thing, HOV could have had zero net sales in December and it could have been a substantial improvement over October and November.
Has atlas shrugged?
Hahahaha - I guess the "Sale of the Century" will have to continue forever! Maybe they'll sell off parts of the company in the process... or, they COULD try dropping prices to something affordable. What a novel idea!
I think there is little doubt that this business will not remain solvent by 2009. The question is how are these homebuilders not going BK sooner? They are being sticky on the way down...
Mook many of them are not first-time buyers. If they sell a home, they're likely to just want to buy another.
My parents recently bought a house in Colorado Springs. Of course they report that in their neighborhood--a new development--there were some people who walked away from their deposit and contract and the builder was trying to sell these homes at a discount. However my parents--who sold a totally paid-off house for $615K (10% less than asking, btw) that they bought for $150K in the mid-1980s--were looking for a (semi-)retirement home and were not as price-sensitive as someone who would actually have to borrow money to buy a house. Equity was not their concern so much as a place to live at a price affordable for them in an area they liked, and by moving to a lower cost of living area they still got to pocket a few hundred grand.
So these would be the kind people NOT walking away from the contract--they're already saving hundreds of thousands over anyone who has to borrow money to buy a house.
Mook many of them are not first-time buyers. If they sell a home, they're likely to just want to buy another.
Which makes the whole thing make even less sense, IMO. Because if you're buying new construction - as opposed to an existing home - you're almost certainly going to be buying (or contracting to buy) before you start thinking about selling.
So if you sign a contract in January for home delivery in, say, November ... and then put your house up for sale in May ... and it spends a month, or two, or three on the market while you come to the realization that prices are falling ... would that not prompt you to perhaps take another look at the buyer's contract you signed? And perhaps wonder whether that new house is really worth the figure on said contract any more?
Well, that depends on the timing. If you sell high and buy high at the same time, there's a wash. I see what you mean about the timing in a declining market, but maybe the smarter members of the 60% are getting concessions to proceed with the purchase?
I personally know a CPA in the DC area who sold in 2005 and has been renting ever since. He said it's been a source of stress with his wife and child waiting out the market. He wouldn't do it again.
Joy: My parents recently bought a house in Colorado Springs.
The popular mind-set that buying a house is the right thing to do will take a long time to be purged from people's minds. The real estate pain of the early 90's is a distant memory, and for about an entire decade houses went up, in spite of stock market drama, terrorist attacks, two wars - the nearly unshakable mind-set is that houses go up in price or at least don't lose value.
Why aren't your parents renting a house?
Somehow the potential losses of buying a house are not real. They are too far in the future, maybe. My parents and grandmother live in two houses that have a combined value of well over a million dollars. They are blissfully unconcerned with the probability that their housing has been incredibly expensive for the last year - about $75K for the two of them! - and stands to be similarly expensive over the next five years. The depreciation is an abstraction, and only over long periods of repeated pain will the depreciation become real to them and everyone else.
We are in for a long, miserable haul.
"You'd think if they were going to invoke the bible they could have got that prediction accurate to another decimal place: 10.13% or something"..MLM
Since when did the Bible ever do decimal?.....
c_s, WRT cancelling the dividend, that's hardly throwing shareholders under the bus.
If they pay out a dividend, the stock is going to BK and zero, forthwith.
Paying a dividend could probably rise to nearly a criminal act if management knows it will BK the company.
Why WOULD my parents want to rent? They have no payments (besides the purchase itself --in fact there was significant cash profit from their old house even after buying the new house) involved and they view a house as a place to live where they can do additions and renovations (such as the deck, handicap access for my grandmother if she needs it) that will make their lives more comfortable and enjoyable as they age.
I think a house is a good purchase if you can afford it, you want to live there long-term, you want to make changes and your own repairs to it, stuff like that. There are a lot of rentals that are simply not maintained by the landlords. Who wants to live in the house with the peeling paint and rotting siding or have to move out if your landlord decides to not renew the lease or break it? That's fine for young folks but these are older people who like stability and don't carry any debt and do have good savings. They are not suffering for this and they won't because they are free and clear. They don't view a house as an ATM and never did.
I guess maybe a lot of you are young. We have a friend who bought a house on Mulholland Drive in LA. Mid-80's if I recall correctly. For almost $1 million. It went up to maybe $2 million - then maybe down to less than $1 million in the early 90's. Then I'm sure it went way up again - and now it's going down again. If you can afford your house - and you like it - and it fits in with your lifestyle - the ups and downs are no big deal. Our experience with prices in Florida has been similar - but not as extreme (going up or going down).
I agree with Joy about the stability factor. I am 60. I don't want someone saying I can't do this or that or the other thing in my own house. Much less someone having the right to throw me out on the street on 60 days notice every year or two.
I think this attitude makes sense unless and until the owner may need some kind of senior facility (which usually doesn't happen until people are in their 70's - 80's - or even 90's these days - depending on the individual). Then you have to be sensitive to what your house is worth - because - at least for a lot of older people - it is a substantial asset with a fair amount of equity. I'll note that my 90 year father sold his house in late 2005 and he now rents a villa in a senior independent living facility. When he moved there in early 2006 - it had a waiting list. Now there are a lot of vacancies because people who need to sell their houses to move there can't (at least not at the prices they're asking).
Note that my father sold at the absolute top of the market to a speculator who will probably lose the house. Just kind of dumb luck - if you call my mother dying in 2005 dumb luck (sigh). As a misc. tax tidbit - if your spouse dies - you can use the full married couple capital gains exemption in the year your spouse dies. But you're back to single status on January 1 the following year.
If I were young - and still renting - and wanted to own - I would look at the current situation as a buying opportunity. Maybe not today. But eventually. But - if I thought I might have a new job 5 states away in 3-5 years or less - I'd probably continue renting. Houses aren't extremely liquid most of the time - and there's a lot of friction in the form of transaction costs when you buy or sell. The hot buying/selling action in recent years is more the exception than the rule.
BTW - regarding builder sales prices - there was an article in today's (?) WSJ about how it's difficult to compute accurate prices because of incentives builders are extending to buyers (everything from free cars to free pools).
Another thing, when you sell a house you get a huge break on capital gains tax if you roll the profit into a new house. You'd lose that if you rented.
Apparently what I posted in the comment above about capital gains is obsolete. Tax law has changed since the last time I read up on this. Mea culpa.