Hovnanian Stages Weekend Fire Sale of Luxury Homes
Hovnanian Enterprises, struggling like other home builders, is offering six-figure discounts on some of its properties this weekend as it attempts to draw interest in a slumping market.
The sales blitz involves dropping prices by more than 20% on some of its prime real estate.
"We wanted to create a little more buzz and hype and we got all of our geographies to agree to do a three-day blitz all at the same time and that's what is unusual," CEO Ara Hovnanian told CNBC on Friday afternoon.
"We've had to reduce prices to deal with the marketplace and we want to make sure we communicated," Hovnanian added. "We do have a little more inventory than we'd like and we'd love to stimulate sales more so that's what we came up with this idea to move some houses."
The company's largest discounts are on its most expensive homes, including a three-bedroom condominium by the Hudson River in West New York, which has been reduced $240,000, or 22%, to $862,000 this weekend. A 25% discount is being offered on a 2-bedroom home in Jackson Township, N.J., which lowers its price tag to $300,501.
Hovnanian's discounts come during the worst housing downturn in 16 years, which has slashed earnings for the Red Bank, N.J.-based company and other national home builders. Tight credit, fueled by a meltdown in the subprime mortgage industry this year, has sidelined potential buyers who were already wary following years of escalating home prices.
More Discounting Likely
No other major builder is having a sale of such magnitude, but swollen inventories are likely to lead to more discounting, said Sam Chandan, chief economist at Reis Inc., a real estate research firm.
"We've certainly seen conditions in the housing market continue to deteriorate in the last several months," Chandan said. "The downward adjustment in prices, whether for new homes or existing homes, is going to be far more severe than what many people thought earlier this year."
Although forecasts predict continued declines in the number of homes whose construction is underway, the climate is seen as an opportunity by Hovnanian , which last week reported its fourth consecutive quarterly loss.
"Folks are ready to buy, they are just waiting to confirm that there is value out there," said Michael Skea, vice president of marketing and sales for the company's northeast sector.
This weekend's sales, announced on Sept. 5, involves thousands of homes in 19 states and starts at 9 a.m. Friday and ends at 9 p.m. Sunday, said Skea, adding that the company has never had such a sale in its half-century of homebuilding.
The company promoted its "Deal of the Century" with radio and print ads, and Skea said "hundreds" of people have made appointments to visit homes this weekend.
"We think it will effectively overcome the malaise that people have been carrying around since the subprime debacle occurred in late February," he said. "It's just a matter of getting the buying public to realize this is a great time to buy."
Indeed, mortgage rates remain at historic lows.
Skea said the sale would not be repeated, but an industry observer was not so certain.
"Depending on how successful it is, it might not be a one-time event," said Keith Gumbinger, vice president of HSH Associates, a consumer loan research firm in Pompton Plains, N.J., suggesting that buyers might wait if they thought a better discount was imminent.
Gumbinger found the sale remarkable, given low mortgage rates.
"You wouldn't think there is a need to go to the marketplace with such discounts," he said. "This is a pretty good indication from a prominent homebuilder that the market is troubled."
Recently, other builders have offered savings as price cuts and free appliance upgrades, he said, although they have avoided such big discounts so far.
Hovnanian's Skea said the prices offered this weekend will involve "no further negotiating" and contracts must be signed by 9 p.m. Sunday.
Last week, Hovnanian reported that after paying preferred stock dividends, it lost $80.5 million, or $1.27 per share, in the quarter that ended July 31. That compared with a profit of $74.4 million, or $1.15 per share, in the same period a year ago.