Bad news in the housing market this week was enough to rock the stock market right off its foundation.
Existing home sales, new home sales, homebuilder earnings reports -- no one expected them to be bright, but the numbers cast a heavy shadow on any optimism for a quick recovery in housing.
“I think there’s not a rapid recovery in the immediate future without a doubt,” Hovnanian CEO Ara Hovnanian says. “It’s a challenging market at the moment.” Challenging was a word used by several of the homebuilder CEO’s reporting earnings this week. The biggest hit to the collective bottom lines appeared to be impairments or “write-offs” related to land option contracts. Just four of the homebuilders put together lost over two billion dollars in that category.
“We believe that market conditions will continue to be challenging, and our quarter-end impairment evaluations incorporated our more cautious outlook for the industry,” wrote D.R. Horton Chairman Donald Horton. The company’s quarterly results included pre-tax charges to cost of sales of $835.8 million for inventory impairments.
“You’re seeing operating margins that are actually approaching break even in a lot of cases,” notes Nishu Sood of Deutsche Bank. “I think that’s a trend that you’re likely to see continue, also the significant levels of impairments.”