June 02, 2007

Don't think a historic real estate crash is underway? Tell that to Hovnanian who just lost 75% on land in 24 months

Folks, when you pay $85,000 and sell for $20,000 two years later, that's an epic, historic, mind-blowing meltdown.


And makes you wonder, after falling 75%, can it fall even farther? Big message is don't buy real estate for 10% off or 40% off. We're going to see firesale pricing that'll make your head spin. 75% off. Wow.

Geesh. This is amazing.

The following is a transcript from today's HOV conference call:

Stephen S. Kim - Citigroup Smith Barney

That’s what I thought. Could you give us a sense, or maybe what magnitude it was lower than what you had initially paid?

Ara K. Hovnanian

Well, we did not buy all of that land in one transaction. These are, if you remember, scattered lots in that area so they were literally bought in small increments on a regular basis.

To give you an idea on how significantly that market corrected, at the peak lot transactions happened in one of the areas at about $80,000 a piece.

The market continued to come all the way down. We wrote it down, and not all of ours, by the way, was purchased at $85,000 but that was where it was at the peak.

We wrote down the values to the low 20s, and I think the contract amount off the top of my head came in just slightly below that level.

Stephen S. Kim - Citigroup Smith Barney

Thank you. That’s what I was looking for. Thanks a lot.

26 comments:

Anonymous said...

ouch

a.creampuff said...

McMansions are the SUV of houses. Maybe we could start building in a way that uses every idea about energy conservation, recycled materials, reuse of parts, and environmentally friendly materials. This would result in a radically different type of dwelling and commnunity. Just at a glance, Hovnanian and their ilk have a sickening disregard for any of these important design factors. It's not like no model for a truly contemporary house exists. "What the people want" is always the excuse - yet sheeple are driven by MARKETING. They are told what they want. What we all need is sustainable architecture. Developers only care about turning a buck.

Anonymous said...

If you can get 75% off that seems like a good price

Kenduffelsniffenspotzen said...

A 75% decline? Don't worry. It was someone else's pension fund we used to buy that crap.

Anonymous said...

All these builders put up are boxes. They embellish them with "old world" style by sticking styrofoam moldings on them, but only on the fronts. Step out back and take a gander down the to you neighbors house and it reminds you of tennements as they all line up perfectly square with no detail, trees or such.

Anonymous said...

75% off. So homes will be selling for less than 1990 prices.

Whatever.

Anonymous said...

HAHAHAHAHA BAGHOLDERS

Flush said...

Where was this? Obviously not where it was needed...

Anonymous said...

Waiting for a drop myself, but they wrote down the land on their books and did not sell at this price. Its an accounting trick to take a kitchen sink hit all at once. So one day they can show a profit, but who knows when.

Instead of looking at relative price drops. I would look at it from return basis. IE When I looked at what my landlord paid for my rental with taxes and common charges I calced a 4.2% return. I am in the commrcal real estate business and wouldn't take the risk owning for less than 7% or at a min a positve spread to the cost of borrowing.

Anonymous said...

Keep in mind that the majority of the run up in housing prices was due to land value and not construction costs. From 2002-2005 construction costs went up about 20% They are down about 15% from that number now. Land values went up 300 to 400% which is where the majority of the increase came from. The drop in housing prices is really a drop in land values.

Anonymous said...

They wrote the land down to the low 20s and then the land sold for less than that

Got it?

Peahippo said...

Generally, if you buy something at $85 and sell it for $20, people rightfully say you're a loser.

However, if you multiply that loss by a thousand, you're just a "savvy businessman" caught up in a "bad market".

And if you multiply THOSE losses another thousand times, you're a friggin' captain of industry! All hail!

See how having an MBA degree pays off? It functions as an "idiocy dampener" and excuses you from any consequences of bad decisions. Further, an MBA authorizes your debts and losses to be absorbed by the government through massive tax write-offs.

So ... class war in America? Nope, no class war here, at least according to the corporate media ... just financial fellatio performed on the rich man's economy. When H. Ross Perot talked about the "giant sucking sound", he failed to mention THAT possibility.

Frank@NeverColdCall.com said...

This is beautiful.

Anonymous said...

i have not seen land values drop in my of so cal. people keep talking about drops it has not happened accept in may spec driven demand in vegas,san diego,florida other than that i don't see it.

Anonymous said...

What may be worse is that I think I saw that they bought some acre parcels from the govt for a million an acre that did not look any different than those being sold for 25,000 in the same area, guess the deal? on commisions, brokerages, agents, kickbacks skim jobs, bribes ect, at those values was to much to pass up in the attempt to rape the shareholders ala wall street, said one shareholder.......was probably 200,000 per acre not forgeting the permiting costs....

Anonymous said...

and short selling at a loss???

Anonymous said...

no place left for non suckers

Anonymous said...

nobody is going to unload properties like that unless they see things coming that no one in the media is willing to see.

Anonymous said...

i wonder who bought the properties and why?

Anonymous said...

Yup, one company loses 75% on one piece of property and from that we can assume every property and every home will lose 75% too.

I've seen 4 year olds with a better grasp of the world.

Anonymous said...

See how having an MBA degree pays off? It functions as an "idiocy dampener" and excuses you from any consequences of bad decisions. Further, an MBA authorizes your debts and losses to be absorbed by the government through massive tax write-offs.

---------------------------------

Sounds like a bitter renter who also didn't get accepted to business school. No thanks, I will not supersize my meal today.

Shakster said...

This just in from Hovnanian-We relly don't care,so HPrs may as well save their commentary,the investors are still lined up,and the government is still in our pocket!

roflmao said...

How can this be? The bean counters at the goobermint say that home prices are up 4.1% over last year. Could the goobermint be lying to us? Nah, they wouldn't dare.

You're doing a good job Brownie.

Anonymous said...

Could not happen to a more deserving home builder swindler. If only the sheeple knew that-- granite countertops DOES NOT MEAN THAT QUALITY CONSTRUCTION HAPPENED IN THE SAME PLACE. KHov builds "luxury" shit boxes. Big overblow pieces of crap.

Anonymous said...

You people are still not understanding what went on during the housing bubble. Granted land was too expensive but the reason for the housing bubble is the builders kept raising prices to whatever the buyers were willing to pay. I remember Fulton Homes in Chandler, Az. bragging that he raised home prices $10,000 every week depending on how much buyer traffic he had.
If you look at the home builder's stock price you can see they were making tons of money which caused the price of the stock to keep climbing. If costs were also going up they would not have made as much money and the stock price would have stayed flat.
At the height of the bubble I saw average homes in Arizona and Florida going for $200 to $220 a square foot. An average home with the land can be built and sold at a profit for $100 to $130 a square foot. This is why homes are not selling now. New houses are listed at $200 a square foot so existing homes are priced the same. That is just too muckin fuch!!!

Anonymous said...

bogus all around today, everyday