Luxury homebuilder Hovnanian Enterprises has posted a huge Q4 loss, dampening the ray of optimism cast by yesterday's report of a 6.7% jump in new-home construction in November. The company reported a 1.5% drop in revenues for the quarter, to $1.7 billion, and a loss of $117.9 million ($1.88 per share). This loss, which is the result of steep inventory impairment charges and land write-offs, stands in stark contrast to the company's $165.4 million, or $2.53 per share, profit in the same quarter last year. Investors responded to the news by selling across the sector, bringing Hovnanian down 1.9% and the S&P Homebuilding Index 1.5%. The sector is suffering from high cancellation rates and high inventories, which have sent prices plummeting. Hovnanian's guidance for fiscal 2007 EPS is $1.50-2.00, provided conditions do not deteriorate much further. Hovnanian's CFO, J. Larry Sorsby, expects the sector to bottom in H1 2007, but also expects the market to "bounce along the bottom for several quarters before pricing and sales [improve]."
• Sources: Business Week, Newsday, TheStreet.com, Reuters
• Related commentary: Assessing the Homebuilder Stocks, How to Short Homebuilders: Look for the Fastest Growers, How Long Can Consumer Confidence, Earnings Weather the Housing Bust?, How Far Will Housing Drag Down The Economy?, James Grant's Investment Strategies for the Housing Predicament, Homebuilders Lower Forecasts on Weak Demand and Cancellations
• Potentially impacted stocks and ETFs: Hovnanian Enterprises (HOV), DR Horton (DHI), KB Home (KBH), Centex (CTX), Toll Brothers (TOL), streetTRACKS SPDR Homebuilders ETF (XHB), iShares Lehman 1-3 Year Treasury Bond Fund (SHY)
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