Incremental improvement in demand contributed to significant growth in profit and contract pace in the fiscal first quarter for Hovnanian Enterprises.

CEO Ara Hovnanian said underlying market conditions, including lower mortgage rates, tight resale inventory, and favorable employment and demographic trends, give the No. 16 company on the 2023 BUILDER 100 confidence that revenue, sales, and profitability will continue trending upward in 2024.

“We are off to a solid start to fiscal 2024, with 80% year-over-year growth in our income before taxes for the first quarter,” Hovnanian, chairman, president, and CEO of Hovnanian Enterprises, said. “Along with the growth in profitability, the past few months have drawn attention to the relative strength of demand for new homes, which can be best exemplified by our 48% growth in consolidated contracts per community during the first quarter of fiscal 2024.”

Contracts per community for the home builder increased to 9.6 in the fiscal first quarter, ended Jan. 31. While Hovnanian said the year-over-year comparison was “easy” given lower activity in the same period of fiscal 2023, the 9.6 pace for contracts is 12% above the builder’s historical benchmark and equivalent to the pace in the first quarter of 2020.

Hovnanian said the company sold and closed more quick move-in (QMI) homes during the quarter than historically, and QMIs remain a key element of its strategy moving forward. Hovnanian said QMIs represented 63% of sales in the first quarter, significantly higher than the historical company average of 40%.

“For the foreseeable future, elevated QMIs remain part of our operating philosophy. One of the benefits of elevated QMI supply is it greatly reduces complexity for our customers and increases efficiency for our trade partners,” said Hovnanian.

Hovnanian said mortgage rate buydowns, which have become an increasingly important incentive to manage and solve for affordability, are becoming less prominent for the company. Newer sales are taking less buydown costs, with concessions including buydowns for February contracts more than 100 basis points lower than the fiscal first quarter. Of customers that purchased with a mortgage in the first quarter, the share who elected to use a rate buydown decreased from 87% in November to 72% in January. In the first quarter, the cancellation rate for contracts was 14%, a significant improvement from 30% in the first quarter of fiscal 2023.

In the first quarter, revenue for the home builder increased 15.3% to $594.2 million, including 1,063 deliveries, from $514.4 million, including 938 deliveries, in the prior-year period. Quarterly profits increased to $23.9 million, or $2.91 per share, from $18.7 million, or $2.26 per share, in the fiscal first quarter of 2023.

During the first quarter, Hovnanian Enterprises spent $230.4 million on land and land development, the highest allocation since 2010, according to chief financial officer and treasurer Brad O’Connor. In the quarter, 3,800 lots were put under option or acquired in 43 consolidated communities. At quarter’s end, the builder’s community count was 118 communities, a sequential increase from 113 in the fiscal fourth quarter of 2023.

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