Hovnanian: The Big House Giveaway

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Hovnanian (HOV), the home builder, is going to have a three day sale this week. It would be more accurate to say that they will be giving the houses away, at least from a profit standpoint. According to Bloomberg, Hovnanian will be cutting prices on some homes by "offering discounts of up to almost $150,000."

Ads for the sales have headlines like “These three days could change your life! Don’t miss this once in a lifetime opportunity!” 

But, Hovnanian needs to get the inventory off its books, even if it loses money on some of the properties. After building the homes, it has to pay to maintain them, a mix of interest payments and upkeep. Selling the homes not only brings in some cash. It also keeps the homes from having to be written down further in future quarters if home prices continue their slide.

And, that is the toy in the Cracker Jack. Hovnanian is signaling that it believes the housing market is going to get worse. It move is more a liquidation than it is a sale. It is putting its own homes into foreclosure so that the entire company does not go there. It is saying that a recovery in real estate is far, far off.

Douglas A. McIntyre