Wednesday, March 11, 2009

Hovnanian Gives Latest Negative Earnings Surprise

The carnage in homebuilders continues. Hovnainan posted a $2.29 loss, substantially worse than the consensus estimate of -$1.56 after "joblessness climbed and prospective buyers waited for prices to quit falling." Paul Puryear, director of real estate research at Raymond James had some additional choice words: "A couple of builders are on the critical list, Hovnanian being one. The No. 1 driver of household formation is job growth and job growth is negative. We need to turn that around." Lastly, owner Ara Hovnanian gave his 2 cents on the lack of light at the end of tunnel of 10 consecutive quarterly losses

"Given the lack of steps taken by the federal government to address housing demand, prospective home buyers are still faced with making the decision to buy a home against an exceedingly difficult economic backdrop. We expect demand for all homes, both new and existing, to remain far below normalized levels. While we have experienced a typical, seasonal pickup in traffic and sales since the middle of January, this increase is coming off of extremely low levels that have prevailed since mid-September,”
Hovnanian, which features prominently on Moody's infamous death list, was downgraded on March 6 to Caa1 from B3 with the following caution "Government actions will be helpful largely at the margin liquidity will remain tight and lender behavior uncertain, and2009 will be a year of greatly reduced deliveries."

Which leads us to the broader real estate, both residential and commercial, space of which we think the REIT sector is most poised for some dramatic downside surprises (one only needs to look at the GGP soap opera for a good idea of just how bad things really are). The only potential saving grace would be whether the U.S. decides the REITs are the next sector it considers too big to fail (more on this in a subsequent post). However, as we have seen with what happens to other sectors to which the government decides to provide its helping hand, this too could be a two edged sword. Sphere: Related Content
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