While Hovnanian Enterprises (NYSE: HOV) "Deal of the Century" weekend promtion generated more than 2,100 sales for the Red Bank, N.J.-based builder, it didn't lower the builder's average weighted cost per home, which is about $323,000, said Ara Hovnanian, the company's CEO.
Although Hovnanian's sale was national in focus, the discounts were not uniform. In a relatively solid market, like Houston for instance, buyers may have only gotten a few options. In other markets, the incentives may have been even better. "There have been promotions all year long," Hovnanian said at the Credit Suisse Home Builder Conference in New York this morning (Sept. 18). "They have just been isolated promotions."
He continued, "Those that bought this particular weekend were primarily focused on inventory with unique homes and unique locations," Hovnanian said. "In many cases, the colors were predetermined and they had to choose whatever options were there. "
Hovnanian said his company now has one of the lowest inventory backlogs in the industry, with 2.7 months of supply. The industry average is more than five months. "Clearly this sale will be beneficial to cash flow and inventory reduction," Hovnanian said.
The sale's final effect on Hovnanian's bottom line won't be known and until its customers' contracts are finalized and their financing is approved. Dan Klinger, president, president of K. Hovnanian American Mortgage, says he will have a better handle on how many of the 2,100 buyers qualified for mortgages by the end of the week.
Klinger doesn't anticipate the cancellation rate being higher than the industry average of 35% in recent quarters. "Many of the sales were being pre-qualified as contracts were being written," he said.
In fact, many of the buyers were not strangers to Hovnanian, giving the company a good handle on its prospects. "Much of the traffic we generated were already previous visitors to our sales offices," Hovnanian said. "They had some idea what they could qualify for. We just needed to get them off the dime."
The 31-state "Deal of the Century" sale, which took place Sept. 14-16, netted the company more than 2,100 gross sales, more than 1,700 signed contracts and more than 400 sales deposits, the company reported Sept. 17. It also crashed the company's website.
"We couldn't support the level of traffic," said Beth Corbett, assistant marketing manager for Hovnanian, speaking of the website. The sales centers were equally taxed, with some so swamped the salespeople did not have time to take contracts from buyers but instead took deposits to hold the deal while contracts are drawn up. When asked if that amounted to risking some of the deals, Corbett replied,"They won't walk away if they really want the home."
Corbett said the results of the promotion far exceeded expectations."We had an internal bet to sell 1,000 homes over the weekend," she said. Hovnanian stock was up 3% to $11.33 in late-session trading on the news.
Ara Hovnanian said before the sale that he hoped to sell 700-800 homes. In a prepared statement Sept. 17, he said, "The high level of traffic we saw in our sales offices and models over the weekend and over the past several weeks convinces us that there are interested buyers in the market today. However, with all the negative publicity about the housing market, many home buyers were hesitant to buy because they worried that even lower prices may be offered later." He added that while the focus was on unsold existing new homes, the company did take advance orders on homes that were ready to begin construction. He concluded, "The weekend sales should result in one of the lowest companywide inventory levels of unsold homes under construction in our recent history. All in all, the campaign was a huge success and we will be working hard to deliver these homes to our customers in the near future."
To generate the intense interest for its Deal of the Century, Hovnanian mounted an aggressive advertising and promotional campaign. Heavy use was made of radio, and the publicity effort landed the Hovnanian sale in the lede slot on at least one TV network news broadcast. Larry Soresby, Hovnanian's CFO, wouldn't disclose how much the company spent in marketing weekend sales blitz. Likewise, Corbett wouldn't reveal the amount invested, but one person who was involved in the promotion in the Southwest who would not speak for attribution said the investment was in the neighborhood of a 30% boost in the marketing budget. That person said business was brisk in one Southwest market on Friday but slower on Saturday.
On Friday, Hovnanian told Bloomberg.com that he expects a bottom in the housing market soon, just as the company was gearing up for the weekend sales promotion . Hovnanian told Bloomberg that he believed "the bottom is very near" but that the market will bounce along that bottom "for a while." Bloomberg reported that he put the timing of a recovery into 2009. It also reported that when asked whether the nationwide home sale was an act of desperation, he replied that it was a "logical" thing to do in this market.
In New Jersey, The Record of Hackensack reported that Hovnanian was offering discounts of 25% on some of its homes there. The incentives vary by region, with prospective buyers of higher-end homes in Florida and California getting the biggest discounts.
In a research note to investors, Michael Rehaut, lead home building analyst at J.P. Morgan, said, "While we are impressed by the significant amount of orders HOV wrote during its 3-day weekend 'Deal of the Century' promotion -- specifically, 2,100 gross orders, or more than double, we believe, HOV's internal goal -- we also note that the significant price reductions and incentives given should drive continued gross margin pressure over at least the next two quarters."