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Hovnanian CEO: Housing Problem Only A Mind Set--Really?

Friday, 27 Jul 2007 | 12:06 PM ET

I have to say that given the earnings of the major public homebuilders that I’ve been reporting all week, Hovnanian CEO Ara Hovnanian’s comments on CNBC this morning made me wonder if his rose-colored glasses weren’t perhaps impairing his vision entirely. No offense at all to the CEO, who, I’m happy to say, is one of very few of his ilk right now that will actually agree to go on TV and speak his mind. The rest have been turning down our requests, several even telling me that I personally make them look foolish.

Mr. Hovnanian took the chair at a difficult time to be sure, and I don’t blame him for trying to reign in a little bit of the melodrama in housing right now. “We've been through these cycles many many times before,” consoled Hovnanian. “When it's bad, everybody thinks it's going to be bad forever, and that's not the case. It is going to come around.”

Of course the market is going to come around, but I have to disagree with his follow-up: “It's a psychological problem right now more than anything; job growth is good, interest rates are still really very very good, demographics are good, so it will come around.”

More Heartache for Housing
The slaughterhouse that has been the U.S. housing market for the past few months has just been getting bloodier, with Ara Hovnanian, Hovnanian Enterprises pres/CEO; CNBC's Rick Santelli & Becky Quick

It’s not all psychological.Yes, there are plenty of homebuyers sitting on the sidelines because they don’t want to get into a market that has yet to hit bottom, and there are plenty of homeowners waiting to put their properties on the market for the very same reason. But there is a fundamental credit problem out there in the housing market that has nothing to do with psychology. It has to do with lenders tightening their standards and subprime borrowers, who would have been handed a low-interest loan on a silver platter just a year ago, getting priced out of homeownership altogether.

We saw it in a new number today. The homeownership rate fell for the fourth straight quarter to 68.2%. Remember the whole “ownership society” thing that President Bush kept touting back in 2004? Well he could do that because homeownership was at an all-time high. Not so much anymore.

Not to mention, the homeowner vacancy rate is near an all-time high as well, slightly off last quarter, which was the highest in history. That means there are simply a ton of empty houses sitting out there in your neighborhood. These are homes that investors couldn’t flip or that owners couldn’t sell once they moved on to their new home, or that homebuilders, like Mr. Hovnanian, have glaring on their company balance sheets.

Yes, this correction will correct itself, but a nationwide dose of Prozac ain’t gonna do it. The mortgage market has to “normalize”, affordability has to ease a bit, and builders have to stop putting up houses for buyers that don’t exist.

Questions? Comments? RealtyCheck@cnbc.com

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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