Hovnanian Paints Weak Picture for Homebuilder ETFs

 |  Includes: HOV, ITB, XHB
by: Tom Lydon

Hovnanian (NYSE: HOV) reported quarterly earnings late Tuesday, painting a dismal outlook for homebuilder shares and exchange traded funds.

The builder lost 69 cents per share, more than analysts were expecting. Wall Street was anticipating a 51 cent loss per share.

A 17% drop in new home orders was the backdrop to Hovnanian’s deliveries sinking 19% after Tuesday’s closing bell. Alex Veiga for Forbes reports that Ara Hovnanian, the builder’s chief executive, wrote the Spring selling season off as a dud, however, net contracts for new homes were up 28% in May from the previous year.

“In a typical bubble, the last stage is when market participants reach a state of despair. We think that seems a fairly good description of current views on housing. Foreclosures and home prices are the most common topics of despair; however, we find typical concerns to be overstated. The foreclosure pipeline has been shrinking for over a year, and now even later pipeline stages are falling,” says a Deutsche Bank analyst on the housing market.

“As long as job growth continues to organically boost demand, we think housing volumes and pricing will again show positive trends in spite of housing’s headwinds,” says the analyst.

Hovnanian is anticipating an improved fiscal situation fort he second half of 2011. The loss of the first-time homebuyer credit and weak jobs market affected homebuilders and the real estate market across the board.

SPDR S&P Homebuilders ETF (NYSEArca: XHB) dropped 0.5% on Tuesday, and lost 4% over the past 10 days. iShares Dow Jones US Home Construction Index Fund (NYSEArca: ITB) fell 0.8% Tuesday, after trending down 3.5% over the past 10 days.

Tisha Guerrero contributed to this article.