Hovnanian Enterprises lost $168 million in its third quarter, and its revenue was down by nearly half from last year, but in the communities where the New Jersey-based public builder is still selling homes, people are buying.
A 62% increase in sales per community year-over-year was a bright spot in Hovnanian's conference call Thursday. The company netted 7.3 contracts per community versus 4.5 in 2008's third quarter.
The flip side is that the company's number of communities has fallen by more than 55% from last year, so even though sales numbers look much better in each community, the company still signed 9% fewer sales contracts. Closings were down 39% to 1,322 from 2,185.
Still, CEO Ara Hovnanian asserted in the conference call that the worst appears to be over. "Several signs of a housing industry bottom have become apparent," he said. In an effort to capitalize on that, the company has started an advertising campaign called "Pounce Before the Bounce" to encourage consumers to buy before prices begin creeping back up.
Hovnanian also said the company has begun to buy land now that the market is beginning to loosen up and prices have fallen to a level where the builder can build homes and book a profit in the 20% to 30% range. "The land market is slowly starting to thaw," said Hovnanian. "We are beginning to see land deals that we can underwrite and price."
Increasing the profit margin beyond the 9.1% it took in during its most recent quarter is critical to the company, which hasn't been able to lower its sales, general, and administrative expenses fast enough to match the market decline. The company has dropped its head count 72% since the peak and 33% in the last month. Still its SG&A remains at 18.3%, somewhere in the middle of its peers' numbers.
On the land front, Hovnanian said the company is making deals in several ways. In some cases, it is taking down finished lots just as they are needed. In others, it is buying small batches of lots, 40 or 50 at a time, that are finished or almost finished in cash deals. The New Jersey-based builder also looking at bulk land deals that could bring in profits in the 30% range. Those purchases would be done without taking on new debt, using joint-venture partnerships.
"We have been in business for 50 years, through five downturns," Hovnanian said. "In each case, there were opportunities to buy land at extra low prices. Looking back we can always say we wish we had bought more."
Teresa Burney is a senior editor at BIG BUILDER and BUILDER magazines.