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Hovnanian Enterprises Inc. - Nationwide Home Builder




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Hovnanian Enterprises, one of the biggest publicly traded home builders, may not survive the crashing housing market. The builder reported fourth quarter net loss available to common stockholders of $469.26 million or $7.42 per share, compared to a loss of $117.93 million or $1.88 per share in the year-ago quarter (link). The four fold increase in losses was due to tighter credit and foreclosures dumping houses back onto the market (Per Since the fourth quarter earnings announcement Fitch, Moody's and S&P have downgraded the credit ratings of Hovnanian(link link link). Despite the prospect of future rate cuts the out look for all the builders remains challenging(6). The principal problem for Hovnanian is falling deliveries amid rising cancellations. In fact Hovnanian is selling at deeper discounts and squeezing its margins as the housing crisis continues. And even as Hovnanian struggles with lenders and fends off acquirers (link) it scavenges the valuable land of other beleaguered builders, becoming at once predator and prey:

"I hate to feel like a vulture, but in every cycle we have typically bought land from other builders that have gone in bankruptcy," Ara Hovnanian, chief executive of Hovnanian Enterprises Inc., said at the Reuters Housing Summit in New York.

"We have already looked at parcels of several other builders in bankruptcy."

And even as Hovnanian fights back with Four Seasons (R) Rancho del Lago the company's first active adult community in Arizona, the rating agencies cut deeper into their debt.

The company is due to report first quarter 2008 results on March 10. CEO Ara Hovnanian has said "The end of '08, personally, will be the bottom and the turning point.". We believe its important to point out that a bottoming out in housing hardly implies things will immediately get better. Housing turns slowly, and whether or not Hovnanian will weather that turn is entirely up in the air.

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Important: Ailing Builders haven't shut down, but they've suffered significant valuation declines, temporarily halted redemptions, or faced other major business hurdles. Builders on watch may not even have unusual declines relative to peers, but may be posted if it is felt there may be risk of developing a more serious condition in the near future.