The stall-out of the real estate market in recent months isn’t only a matter of potential buyers staying out of the market. It’s also a function of contract cancellations, which appear to be a significant factor in the woes of Red Bank-based Hovnanian Enterprises, New Jersey’s largest homebuilding company.
For the second time this year, the company has amended the earnings ‘guidance’ it gives to Wall Street analysts and investors to reflect expectations of sharply lower earnings. Other major homebuilders have suffered similar embarassments.
In an announcement issued Friday, company chief executive Ara K. Hovnanian said results for the rest of the year are expected to be negatively impacted by a slower sales pace, high cancellation rates on contracts in backlog that were projected to close this year, and more pronounced use of concessions and incentives, particularly on the resale of those homes which have experienced contract cancellations.
According to Bloomberg.com:
Hovnanian is also likely to incur walk-away fees for renegotiating “a significant number” of land-buying contracts, it said.
As a result, the company reported that it now expects its earnings-per-share will be in the $1.10 to $1.20 range for the quarter that ended July 31, down from a prior forecast of $1.40 to $1.50 per share. For the full fiscal year, the company is now saying it’s earnings will be in the $5.00 to $5.75 range, down from a previous expectation of $7.20 to $7.40 per share.
Hovnanian’s stock price has been cut in half over the past year, to just above $29 at this morning’s opening.