It has been a very tough year for homebuilders, and no one knows that better than Ara Hovnanian. His company, Hovnanian Enterprises , saw its stock plummet from $40 in February to just below $6 a share today.
Despite the industry’s downturn, Hovnanian maintains a positive outlook and sums this up to the cyclical nature of the homebuilding industry.
“Housing is down; it’s going to come back,” said Hovnanian. “There has been a major correction already. We’re certainly near the bottom, that would be my guess.”
One thing that is giving Hovnanian confidence is the surprisingly strong December he said the industry had.
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For Hovnanian Investors:
-Performance vs. Industry Peers _________________________________________
“The Fed indicated they might change their stance on rates, Secretary Paulson indicated their rescue plan for the subprime resets, and all of the sudden sentiment changed. We had a fabulous December, very unusual, it’s usually a slow time in the marketplace.”
Skeptics are calling for a 15% drop in the median value of homes before we see a bottom in the industry, but Hovnanian says there has been more of a correction than some might think.
“A lot of the house prices they quote have to do with existing prices. New homes have corrected dramatically more than existing homes, so that’s already happened.”
Hovnanian says by the end of February we should see data that accurately reflects the correction the industry has already had.
Solutions
Hovnanian says freezing mortgage resets for homeowners who can afford the pre-reset price will stabilize the market and forestall foreclosures, but he would also like to see the Federal Reserve take more decisive action by further cutting interest rates.
“ I think 50 (basis points) would be key,” said Hovnanian. “I think it’s going to take even more than that, but that would be a great move for confidence.”