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Hovnanian: High Cancellations, Falling Prices
Submitted by
CalculatedRisk on Mon, 12/18/2006 - 4:02pm (32 comments)
"We did not anticipate the suddenness..."
Where's my nickel? Oh, and on a related note; are -8.2% yoy median prices this early on still "sticky?"
How much is that a surprise for the market?
Will it take down some others tomorrow?
These guys are still re-arranging the deck chairs on the Titanic. 2007 for a turnaround. They cannot possible belive that; can they?
Will it take down some others tomorrow?
Take down? The damn market is going to rally like never before on this news.
jb
i think the rally on the bad news game is over. If you havent made your money on these going long since summer, then its time to put on the shorts.
If cancellations are running at 35% but net orders are -38%, that means sales are only off 3%. Yes?
The Company reported net income of $138.9 million for fiscal 2006, or $2.14 per fully diluted common share, compared with $469.1 million, or $7.16 per fully diluted common share, in fiscal 2005. Total revenues increased 15% over the prior year, to $6.1 billion.
- During fiscal 2006, the Company incurred $336 million of charges related to inventory impairments and land option write-offs, including $315 million in the fourth quarter.
I personally prefer some of the other comments made by the good folks at Hovnanian:
We believe that the overall U.S. housing market may hit the bottom in the first half of 2007, Sorsby (CFO) said. However, the housing market is likely to bounce along the bottom for several quarters before pricing and sales pace improves.
If the builder is painting that bleak a picture, what's the reality of the situation? Ouch.
However, the housing market is likely to bounce along the bottom for several quarters before pricing and sales pace improves.
Cripe. Let's thank Bob Toll for coining the new market mantra -- HB's "bouncing along the bottom" until the spring selling season cures all ills.
I find this extremely ironic:
"We believe that the overall U.S. housing market may hit the bottom in the first half of 2007."
Stated for the record. Ira Hovnanian no doubt took a lesson from Bob Toll's fibbing only two weeks ago.
And everyone bought the line that this was the bottom. With the lone exception of Ivy Zellman of Credit Suisse.
Now it's the first half of '07.
The sheer volume of B.S. emanating from housing analysts and their shills in the media is astounding.
I think that finally the B.S. game is over. There is been huge distribution in these stocks since last week. The rush to the exits for those left holding the bag starts tomorrow morning.
The bad news from falling consumer demand is still hitting the homebuilder stocks. This is bad enough on its own for the market segment. But I think what's going to be interesting, and when we really start seeing things hit the fan, will be what sort of multiplier effect is going to happen if the bond markets and issuers take away the easy financing punch-bowl. That'll hit consumer demand hard and probably make the homebuilder's debt loads higher (assuming that their land and new construction inventories are financed with non-fixed rate or rotating lines of credit).
Dog is Just - the truth will out and it will set us free. Or in this case freefall. Would anybody care to speculate when CR's lag impacts when things beging to come up to impact level ?
Does anyone believe these overpaid execs?
They were predicting great times for years to come about a year ago after they unloaded millions of stock options.
it's only gong to get alot worse.
Affordabilty has not even improved.
Phoney loans are quickly drying up so the poniz gaem is over.
The Bloodbath is kicking into full speed come this spring.
"Bouncing along the bottom..."
and is the bottom of the ocean perfectly flat?
Cal,
Hov stated they delivered 20201 houses in fiscal 2006 (including joint ventures). They're predicting 16-18k for 2007. That's 10-20% down if their prediction holds.
By comparison, they delivered 17780 in 2005.
What's interesting is that their profits were $5.46 (before charges) vs $7.16, despite the extra 2500 homes sold. And they're predicting $1.5-$2 for next year on the same number of sales as fiscal 2005. That's quite a haircut on the typical sale price, I think...
CR,
Thanks again.
A request:
Is it possible for you to put together a document on why we have not hit the bottom like NAR says? It will be great if you can provide first time buyers a live document that counters NAR's propaganda. We have many blogs but all the information is dissipated for any new comer to understand what's happening. What i was thinking about is a document that connects the dots.
...just a suggestion.
Regards,
If this news doesn't turn these builder stocks back down towards new lows I am not sure what will. This report is very weak and clearly they are hoping mid-2007 will be the bottom.
In reality we all know this bubble was fueled by subprime and loose financing standards and that game looks exhausted.
This is going to start looking like Japan.
If this news doesn't turn these builder stocks back down towards new lows I am not sure what will.
I hate to have to do Patrick's work for him (the slacker)... but I wonder if any of you noticed this:
Q3 current account deficit: $900b annualized
A deficit of $225b in a quarter/ $900b is big by any standard -- and bigger (in nominal terms) than the previous record in q4 2005. Those convinced that the US current account deficit has already stabilized might want to take notice.
[...]
The pace of deterioration in the current account deficit seems to have slowed. But it hasn't, in my judgement, yet stabilized -- in nominal or real terms.
[...]
Central banks are back. They accounted for $80b of the $175b of identified net inflows to the US in q3. Recorded inflows from official institutions have been running at a $300b pace all year.
If we borrowed that much, then somebody lend it to us... meaning the liquidity is still pouring in... meaning something is still bubbling somewhere around here.
I'd be real surprised if the markets tanked tomorrow or anytime soon until we see evidence it is getting difficult to fund the CA deficit (we'll see & yields & interest rates spike). Until then expect to be surprised. There is just so much hot money flowing in.
Effective Immediately:
Housing is Rebounding
Deficits are Stabilizing
Balance of Trade is of no concern
All Government Statistics are True
Any published information depicting otherwise is punishable under statue 347 Federal Law
Signed,
The Ministry of Truth
WAR IS PEACE
FREEDOM IS SLAVERY
IGNORANCE IS STRENGTH
Putting lipstick on a pig:
From the release text:
"Homebuilding gross margin, before interest expense included in cost of sales, was 23.1% for fiscal 2006, a 330 basis point decline from an all-time record of 26.4% in the prior year."
Calculated from the numbers
Homebuilding gross margin, before interest expense included in cost of sales, was 20.4% for the current quarter, a 580 basis point decline from 26.2% in the same quarter of the prior year.
Believe in the bottom when they claim they are most likely going to have to file for ankruptcy at the same time they begin buying stock.
SCF Cash Used by Operations @ HOV in the last 5 quarters almost $2 BILLION.
Bakersfield Bubble
If their core operations are losing this kind of money now, what happens when the bubble finally bursts?
If their core operations are losing this kind of money now, what happens when the bubble finally bursts?
Cash burn is the key metric to watch... that and bankable equity (how much 'real' equity they have left to borrow against).
For you keeping score at home...
Assets
minus Liabilities
minus Intangible Assets
minus half of Inventory
equals Bankable Equity
Bankable Equity
divided by Cash Burn
equals max time until 'crisis'
Not investment advice - just for amusement purposes only.
What are you guys talking about? It is company specific ! LOL
FREE Q3:2006 reports for Orange County, Inland Empire, Ventura, DC & New York
They join prior FREE reports on Bakersfield, Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, San Diego, San Francisco and Seattle.
thebubblebuster.com
Can someone please tell me what the best overall general statistic for national average (median, mean, or mode) home prices?
I realize this is a subjective question. I'm hoping someone can at least point me in the right direction so I can look at them myself. (CR does a great job, but he puts up so many different statistics, I get a little confused at times.)
One, or two, of your favorites. Or what you think might be most comprehensive.
Thanks in advance. I love this blog, both for the blog and the intelligent comments.
(Tanta, I hope you get better. Good luck.)
Can someone please tell me what the best overall general statistic for national average (median, mean, or mode) home prices?
Case-Shiller Indexes.
jb
Thanks, AMS16. I would have responded earlier, but late yesterday I received a 5-lb box of homemade cookies and candies from the Elderly Aunts, all prepared according to my annoying dietary restrictions and all utterly fab. This is the first time since I got the box open that I haven't had a cookie in my hand (and one in my mouth).
It really depends, to me, on what you want to do with a number. I personally think national averages (or medians; I have never seen any data series present a mode) are not very helpful. OFHEO uses more or less the same methodology as Case-Shiller, but offers it for more metropolitan statistical areas. I think MSA is about the largest useful unit of these measures. OFHEO is an accurate measure of moderately-priced existing homes, although it certainly can lag reality during quick market changes. It is not the best measure of high-end home prices, if for some reason you wanted that, although once again it doesn't suffer from the problem of a small pool of very expensive homes distorting the numbers. It is not any sort of a measure of new home prices, because it is based solely on repeat transactions on existing homes.
When I want new home price data I rely on NAR. I use median in preference to mean when I can get it. For some purposes I use the Federal Housing Finance Board's MIRS data, which is based on purchase transactions comparable to OFHEO's, but mixes new and existing properties.
Basically, if you want the most accurate sense of what's happening to prices, you have to take all the various data series and reality-check them against each other. Because that's more work than any sane person would want to do, I'd say if you were going to pick one, pick OFHEO. Other posters here will tell you different, so bear that in mind.
I've been reading business page reports on earnings for years but I can't ever recall seeing something like this:
From Bloomberg's story on Khov's earnings:
The company also offered guidance for 2007 earnings of $1.50 to $2 per share, and first-quarter earnings of 5 cents to 10 cents per share. Analysts predict income of $2.71 per share for 2007 and 46 cents for the first quarter.
Since when do analysts see earnings for a quarter at 4 times a company's high-end estimate?
Obviously an annual earnings call of 35-60% over the company's prediction is equally bizarre, what would cause such a prediction?
closing italics
Sorry about that (should have closed after quote from article)
Before anyone can buy a new home they have to sell their existing home. It is the "move-up" buyer along with the speculator which drove new home sales.
We all know the speculator is gone.
Mr. Hovnanian and his peers ignore the fact that new home sales are contingent on the sale of existing residences (but for the few first time buyers).
We also know that the move-up buyer is stuck under water and overleveraged on his past purchase. Which will be increasing in payments along with the increasing loan balance next year.
It is soooo comforting and reassuring to know that sales and prices of existing homes are going to rebound in six months. And all is well. What a nice Christmas bedtime story. I guess they all still beleive in Santa Claus or at least want us to beleive it.
Lindsey, analysts are likely crunching out new, significantly reduced, earnings and income estimates for HOV as we breathe.
HOV lost about 3% of market cap and all builders got a haircut. So market is not so crazy, it can adjust.