Hovnanian Enterprises: 'The Housing Market Has Bottomed'

It was only a matter of time before another homebuilder CEO would claim that the housing market had bottomed. Ara Hovnanian, CEO Hovnanian Enterprises (HOV), put his stake in the ground on Friday, 9/14/07, per Bloomberg. Apparently he learned from Robert Toll’s pronouncement in March. He added a caveat to his claim, “The bottom is very near but I think it’s going to stay along the bottom for a while before a recovery.”

If the bottom is in why is Hovanian having a fire sale this weekend or as they are dubbing it the “Deal of the Century.” The company is offering discounts of up to almost $150,000 on homes.

If there is one thing that I have learned from the stock market - it is that picking bottoms is a losing proposition. Matter of fact, I will pass on the first 15-20% off the bottom. The bottom can only be identified in hindsight. In other words, the bottom is in when homebuilders start raising prices not having fire sales.

Comments

[CM]

Exactly how are real estate prices going to go up now?
Either:
1) Rents will rise to equal or near the cost of owning, or
2) Income will go up to afford the newer higher prices.

Neither is happening, nor likely to happen anytime soon.

[Lee Carlson]

Hi CM, I have been in R.E. sales for 25+ years and your assumptions 1) and 2) are correct, but with all the jobs going overseas wages are not likely to rise more than 2-3 pct. a year for the forseeable future and people simply cannot afford the rent that would be appropriate for the high prices people paid.
The only solutions are 1) to take what rent you can get now, simply to cut losses, or 2) take a loss and sell at a realistic price.
Most investors can't wait for wages to increase and those vacant, over priced homes were purchased by people who didn't do the math and figure their realistic return on investment, so now they they pay for their ignorance ! LC

[Lee Carlson]

You are right on target ! One week's activity does not mark the start of a trend ! Like you ,..I would rather start looking back to see where the bottom is rather than to start thinking that's it's already here !
HOV is going to have to run a lot more "fire sales" before they find the bottom . They have a LOT of inventory to move ! LC

[Jakester]

Seven months later and you were spot on....