More on home builder discounts
In a previous post, I mentioned Hovnanian’s “Deal of the Century” where they slashed prices to sell a lot of homes last weekend. While most homebuilders have used incentives rather than discounts in an attempt to maintain prices in their developments, Hovnanian could no longer rely on that tactic to sell homes.
A couple of quick points, Hovnanian does not have a presence in the Charleston South Carolina real estate market. Additionally, they were facing significant financial problems and needed to quickly clear inventory and raise funds. Apparently, among the beleaguered national home builders, Hovnanian was in more financial trouble than most of the others. Bottom line, if you are looking to purchase new construction by a national builder, it is important to understand the financial condition of the builder as well as the quality of the home they are building.
Fitch downgraded Hovnanian’s debt. The Rating Outlook remains Negative as of August 28, 2007.
“The downgrade reflects the current difficult U.S. housing environment, negative trends in HOV's operating margins, and meaningful deterioration in credit metrics, especially interest coverage and debt/EBITDA ratios. The company was slower than most in braking its growth, and consequently, inventories, although now starting to come down, are above comfort levels and debt leverage remains above the company's targeted levels. HOV has been cash flow positive in only one of the past six quarters and its liquidity cushion has narrowed in recent quarters.”
Source: Marketwatch