July 21, 2007

HP calls for an immediate US Justice Department investigation of Ara Hovnanian for attempted price fixing and Sherman Antitrust violations

Folks, it is illegal in America to talk to your competitors in an industry about prices. Yet that is EXACTLY what Ara Hovnanian stupidly did in public the other day, as he addressed his fellow desperate homebuilders at the Southeast Builder Conference in Florida.

I've seen some really dumb things during the housing crash, and this may be the dumbest. "Arrest me" he seems to be shouting. "I'm above the law, I control the universe" perhaps. Mostly though, it's "I'm desperate, and my company is about to go under unless we can illegally conspire together to stop this bleeding"

Yes, I understand the rule of law no longer applies in America, but come on, this is so blatant, so public. Is anyone minding the store?

Here's what Hovnanian had to say to his fellow builders - in public no less!

"Raise prices," he said. "Buyers aren't buying because they think you're going to lower prices again. There's interest but there's fear. Raise prices 3-4 percent. And quit giving discounts.''

For the uninitiated, here's a bit about price fixing:

Price fixing is an agreement between business competitors to sell the same product or service at the same price. In general, it is an agreement intended to ultimately push the price of a product as high as possible, leading to profits for all the sellers. Price-fixing can also involve any agreement to fix, peg, discount or stabilize prices. The principal feature is any agreement on price, whether express or implied

Here's elements of Price Fixing from the DOJ:

Price fixing is an agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold. It is not necessary that the competitors agree to charge exactly the same price, or that every competitor in a given industry join the conspiracy. Price fixing can take many forms, and any agreement that restricts price competition violates the law. Other examples of price-fixing agreements include those to:

Establish or adhere to price discounts.
Hold prices firm.
Eliminate or reduce discounts.

Adopt a standard formula for computing prices.
Maintain certain price differentials between different types, sizes, or quantities of products.
Adhere to a minimum fee or price schedule.
Fix credit terms.
Not advertise prices.

In the United States, price fixing can be prosecuted as a criminal felony offense under section 1 of the Sherman Antitrust Act.

Now, if you'd like your say, forward this on to media contacts, and to the Justice Department's antitrust division here or at antitrust.complaints@usdoj.gov. However, the one problem with this is that as you know our Justice Department is run by corrupt monkeys too.

Unbelievable.

Absolutely unbelievable.

39 comments:

Anonymous said...

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WOW, THE ARROGANCE

Anonymous said...

Not only is he stupid but he obviously doesn't understand supply and demand!

Anonymous said...

Anonymous said...

Not only is he stupid but he obviously doesn't understand supply and demand!

July 21, 2007 9:18 AM
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I'd say its uncertain if his response to the question/dilemma posited to him amounts to a sherman act violation, it might be construed as a solicitation to violate the sherman act. No matter what is utter stupidity when viewed in the current market forces context. Basically he is telling them they should draw a line in the sand on pricing and that once buyers realize that they really mean it then they will cave and buy again is a short sighted strategy.

First there will always be somebody who will cave;

Second some of that demand will just go after existing homes from those who must sell and or have lots of fake equity to play with and are willing to play;

Third there are plenty of nice new and existing homes at good prices that are entering foreclosure because the fliptards could not make a sale, the toxic loan exploded on them and they could not become a floplord in time.

Forth, many people are finding creative ways to reduce housing costs and are not forming households (live with parents; rent a room/mini apt from a FB; share rent w/ roommates etc. A dynamic that is long established in other countries where realty is out of reach from most people so they live at home until in their 30's!!)

Fifth one can always rent.

His proposed strategy only works if the goods they sell are inelastic and/or there is limited competition and only a few alternatives. While shelter is inelastic there are is lots of significant competition and there are alternatives aplenty!!

Message to builders if you want to survive and move spec homes, overpriced land etc:

CUT THE PRICE. PERIOD!!

Anonymous said...

What a douche. I guess he expects the millions of private resales to raise their prices too? What the hell, desperate people do desperate things.

Anonymous said...

This is serious and should be investigated but it won't be

Anonymous said...

Our government is so corrupt that they would never go after this - they are more interested in increasing the cigarette taxes.

Anonymous said...

naturally they think the government should come in and bail out their sorry asses. i guess i never realized just how many .......brothers of the cut........are working in the home building business.

Anonymous said...

Nice pickup.
The Real Estate cartel including brokers and realtors will be brought down when this thing blowsup for good.

Anonymous said...

Laws do not apply to corporations. Laws apply to regular Joe's only! The FDA and INS sure don't enforce any laws..

Anonymous said...

Who cares, let them raise prices. I can rent a lot longer than they can stay solvent. Eventually their inventory will get auctioned off.

Anonymous said...

How is raising prices going to work when buyers can't get approved like they did before? That is unless he thinks everyone can afford to buy in cash...

Shakster said...

What a bad sport.Don't like the real market values,and the rules that everyone else has to play by?

keith said...

If they raise prices and stop giving discounts unsold inventory will pile up even faster and they'll have to cut prices even farther down the road

Hovnanian is a business idiot, and he should be investigated

paco bell said...

that'll be the day!

would a clearly corrupt govt agency ("the justice department"), which has been successfully overtaken by one political party in a "palace" coup, ever investigate it's largest campaign dollar contributors?

ask them and find out?

"we have bigger fish to fry!"

"don't you know we have terrorists to prosecute!?!"

"what are you, a terrorist?"

"don't move or I'll blow off the top of your head!"

Anonymous said...

Sound like the old way of
over-pricing. Say a home, priced at 500k, on the market, does not sell. Raise the price to 550k, so when prospects come by the agent tells them they will knock 50k right off the top!
Sounds good, til you figure out that they got what they wanted anyway.

born to lose said...

"Laws are like cobwebs, which may catch small flies, but let wasps and horntes break through."

Jonathan Swift

Anonymous said...

LauraVella said: AH knows the cash cow is drying up. Banks are tightning their regulations, and by Sept, there will be no more piggy back and other obscure loans products.

People cant qualify even at today's reduced prices - let alone higher prices...what a moron.

RJ said...

Good post!.
Very real desperation is setting in for the big players.
I keep wondering when Bernanke will blink and start lowering interest rates. That would crush the dollar, and fixed savings, but would serve as a desperate attempt at an "inflation tax" bailout (Conventional options are running out for the government and the FED). That's the very thing that worries me about shorting the markets. A quarter point drop in the FED rate could send the markets on a 5% run fueled in part by short covering. Maybe hedging puts with calls in the energy markets? Any ideas? Is anyone having success with puts?

p.s. Mexicanos do in fact return home if they can't find work or benefits. Contrary to myth, they don't want to be here. They want to be with their families in Jalisco or Chihuahua or Mexico City, unless they already have family here. They want to be in the U.S. only insofar as we offer them some benefit for staying. Otherwise, what's the point?
That could change if Mexico becomes violently unstable, which may be closer to becoming reality than we think.

the real peyton manning said...

Seems to me that the housing inventory panic is affecting his judgement. Raising prices to unload excess inventory defies the most fundamental and basic law of supply and demand.

Anonymous said...

During a housing slump, it not just about home builders. It is about the process. And the process is dependent on a chain of events.

First when fear sets in, it is about the fear of losing one jobs.

As construction companies down size, their network of suppliers are no longer needed.

This in turn means that these suppliers will stop buying from their distributors.

As these distributors realize that demands have been reduced, these distributors will cut their services.

Many service companies are labor oriented; therefore, will cut back on their use of consultants.

These consultants are normally small firms, that won't last.

Once this happens, more people will be looking for work in the workforce.

In the mean time as the construction companies downsize their network of suppliers, they will also cut back on their use of subcontractors.

For now these subcontractor will start letting go of their illegal immigrants. These illegal immigrants will then start competing with the laid off consultant people.

Since many of these laid off consultant people can not work at the same pay scale as the laid off illegal immigrants some of these laid off people will began foreclosure process on their homes as they lost hope of finding a job that can keep on paying their mortgage.

This will bring on more homes into the market. As builders raise their prices, foreclosed homes that start to come on the market will start to become more competitive.

However, at first new homes that do not sale due to their raised price will bring more homes inventories to the market causing a greater fear for buyers.

In turn other home owners who currently need to sale their investment homes will have to take a lost. For those home owners who used a funny loan because they were on the shoe string edge to qualify for their investment homes will have to reduce their price some more.

If these need to sale home owners can not sale their home at the extra reduce price then they will need to foreclose or work with their banks on a short sale.

But depending on what stage of the housing slump the cities that these foreclosure or short sale homes are in, banks may find that they may need to resort to auctions to dump those homes.

For the most part if builders can not use incentive to sale their homes then the cities that these homes are located are in the middle stage of the housing slump. In which case banks that need to auction off homes in those same cities will find that buyers will not buy these homes in those auction.

When the banks have to auction off these homes for the remaining amount left on the loan the home prices in those cities are probably lower then the loan; therefore no deals are there to be made for the smart home investors.

As banks take these home back from auction, the banks will need to make the interest payment on these homes to MBS investors. In which case these banks will have to start laying off staffs to keep up with earning with other companies.

As more housing related companies continue to layoff staffs, people will start cutting back on their spending. This could bring about more layoff in the retail sectors.

As the retail sector see a reduction of income, they will start downsizing their network of suppliers.

Now the process starts again in a different sectors causing more people to foreclosure on their homes.

Mean will as home builders continue to maintain their artificial price leverage, subcontractors left with no choice will either start building custom homes on small lots to keep their employees working or lay them off.

If the subcontractors build new homes then they can not sit on them like the big builders, so these new homes will continue to compete with large home builder home prices.

Large home builders who artificial set the price of their homes will soon realize that their measure have only given a few lucky subcontractors the opportunity to come up to become their replacement will find another challenge.

Artificial price setting works well during the middle stage of the housing boom cycle, but Artificial price setting only drags out the time frame during the middle stage of the housing slump cycle and steal time from the ending stage of the housing slump cycle.

The biggest concern is that this mistake of stealing time from the ending stage of the housing slump cycle could mean sharper decline in home prices when different kind of home sellers who need to sale compete in a market were the number of buyers are also reduced.

During the ending stage of the housing slump cycle, fear is at the greatest; therefore, the number of buyers entering the home buying market will be greatly reduced.

During the ending stage of the housing slump cycle, when investors realize all of this they will began dumping home builders stocks in a panic pace to get out.

W.C. Varones said...

Great point.

Linked you here.

foreclose_me said...

I wouldn't call Hovnanian's comments illegal, because there was no discussion of actual prices. There was no dialog between the parties. In many cases, these guys aren't each others competitors.

It was just one guy pissing in the wind. Nothing different than a head realtor advising price cuts to the minions.

keith said...

No discussion of prices? Are you kidding? The man said

"Raise prices 3-4 percent"

Nice try REALTORTROLL

Tradeits_Live said...

Keith,

I agree with you 100%. This crooks should serve jail time and we have to be the activist for change for the corrupt REIC.

I have already filed this DOJ as per your link

mrmx said...

"If they raise prices and stop giving discounts unsold inventory will pile up even faster..."

that isn't necessarily true. i've read about builders buying old apartment complexes and tearing them down and, additionally, the number of apartments being built is apparently going down,...

in boston, for example, because "big money interests" own retail and business space, I read that they'll successfully demand higher rental rates...

Anonymous said...

yes, raise prices at the same time lenders are tightening. that should do wonders for the market.


as far as boston, they can do whatever they want. when educated, talented people leave due to high costs of living, the market there will crash. there are 50 states and hundreds of countries out there. there are many areas in the south that are loaded with good universities. texas and north carolina have been stealing businesses and talented workers from the north and west coast for the past 10 years. california is trying to replace those losses with flippers and illiterate third world immigrants. boston will go the way of the dodo bird if they try it. at least california has nice weather year round. boston only has nice weather 5 months out of the year

Genesis said...

He's dead and he knows it.

Frankly, I think its a good thing. Get this bubble popped and house prices back down to 2000 levels, and we're in some resemblance of an orderly housing market again.

Yes, its going to rape a lot of people. So? There's no other actual solution, you know. We can either take the pain now or later, but take it we WILL.

Anonymous said...

Just saw a Krapnanian ad in the paper today. It said Christmas in July. Half off all options What he is reakkt saying is for everybody else raise their prices 3-4% and maybe just maybe I can get rid of one more Krapnanian plastic house.

Schahrzad Berkland said...

Are you guys serious?

The guy is just venting, making a suggestion perhaps, but to accuse him of price fixing is really far fetched.

Hey, I say that all bloggers should stop writing for free and charge $8/month.

Is that price fixing too?

cobra2411 said...

Even if they did fix the price and it worked, they wouldn't get prosecuted for it because we need the housing market to come back to save the economy.

If the market comes back; even 3 - 4%, it would stabilize the CDO/MBS mess, allow the MEW ATM machine to restart, people can re-fi out from the ARMS of death and more...

Reality is they're screwed.

In the end we will look back and there will be a "Trigger" that crashed the financial market and kicked the legs out from under the swaying housing market. People will jump off buildings... After a few years of the worst recession we've ever had the economy will slowly turn around. After another few years everything will be honky-dory and based on fundamentals. Later it will probably bubble again and repeat...

Anonymous said...

Real estate, construction woes slow Calif. job growth to a crawl

Hiring in California was hit by a bad case of June gloom last month as the effects of the real estate slowdown seeped into the job market, according to data released yesterday by the California Employment Development Department.

Statewide, employers added only 400 jobs in June, after adjusting for seasonal fluctuations, compared with a jump of 29,700 in June 2006. Sharp declines in home construction and financial activity – such as mortgage lending – put a crimp in last month's job growth.

San Diego County reported the slowest year-over-year job growth since January 1994, when the county was crawling out of a recession.

In the past year, local employers added 1,600 jobs to their payrolls – one-tenth of the growth rate from June 2005-06. If government jobs are taken out of the equation, the county has lost 1,500 jobs since June 2006.

“Things are looking pretty bad,” said Alan Gin, an economist at the University of San Diego. “It's conceivable in the next couple months that we might see negative job growth – a fall in jobs.”

Unemployment in San Diego jumped from 4.2 percent in May to 4.6 percent in June, just a fraction below the unadjusted national rate of 4.7 percent, but still well below California's unadjusted rate of 5.2 percent. It was San Diego's highest unemployment rate in two years.

Economists pinned the blame for slow job growth on the local housing market. In the past year, home sales declined 24 percent, meaning less work for mortgage and real estate brokers. And applications for residential-construction permits have declined in nine of the past 10 months, meaning less work for builders.

“It really is the real estate market that's causing this,” said Kelly Cunningham, an economist at the San Diego Institute for Policy Research. “Even though job growth in the visitors industry and the professional business sector is still positive, we're losing as many jobs as we are adding.”

http://www.signonsandiego.com/
news/business/
20070721-9999-1n21jobs.html

djsandbox said...

Anti-trust wouldn't even exist if Ron Paul had his way. I can't believe the cognitive dissonance going on at this website.

Anonymous said...

This is not price fixing. Call it a public suggestion, plea, desperate begging or what have you, but its not price fixing.

You must have the conspiratorial act and evidence of it.

Anonymous said...

Job growth in the East Bay turned sluggish during June, as fresh evidence surfaced today that the meltdown in the housing market has erased employment in the region.

Adjusted for seasonal changes, the East Bay in June added 200 jobs, according to a report released by the state's Employment Development Department.

And over the past 12 months, the East Bay's job growth has lagged well behind the expansion rates in the rest of the Bay Area.

The East Bay during the year the ended in June gained about 11,000 jobs, a 1.1 percent increase. The Bay Area added jobs over the year at a 1.7 percent rate. California payroll employment expanded 1.4 percent over the year.

The culprit for the East Bay slowdown in job expansion is the fading residential real estate market.

The East Bay has lost 2,200 construction jobs during the last year and another 1,100 in financial activities. Both of these industries are linked closely to the housing market, whose sales are in full retreat.

http://www.mercurynews.com/
breakingnews/ci_6424128

Anonymous said...

More Construction Workers Laid Off

The slowdown in the housing market took its toll on Florida's job market in June, state officials said Friday.

With an increasing number of constructions workers out of jobs, the unemployment rate increased to 3.5 percent, up from May's 3.4 percent, the Florida Agency for Workforce Innovation reported.

Construction employment, which fell by 18,000 jobs, has experienced four consecutive months of declines for the first time since 1992.

"The soft housing market is certainly having an effect on our construction employment," said agency director Monesia Brown.

Just last week, state economists said the slowdown may last a little longer in Florida and the slump may be worse than previous expected. June's unemployment numbers confirmed those concerns

http://www.forbes.com/feeds/
ap/2007/07/20/ap3936330.html

Anonymous said...

US Construction jobs could fall 250,000 by end of 2008 says new ADP study

There could be a quarter million fewer people at work in the US construction industry by the end of next year than the current government statistics show now, according to a study.

Using Labor Department figures and previously unpublished data from the private-sector ADP (NYSE:ADP) National Employment Report, analysts at Macroeconomic Advisers say 'by the end of next year construction employment could fall approximately 250,000.'
However, they also say that construction employment may already have fallen by 160,000 jobs below what's being reported in the current payroll data.

The study predicts an average 14,000 jobs lost per month over the next year and a half.

From January of 2006 though May of this year, single-family housing starts fell 36 pct. Yet, after peaking last September, construction employment has fallen only 0.6 pct.

Economists have suggested various explanations including simple undercounting, slow adjustment by companies, lay-offs of undocumented workers who don't file for unemployment and biases in the Labor Department's estimating procedures.

The new study suggests that employment in large- and medium-sized construction companies is down while smaller companies have not had major layoffs. It also suggests a shift to different kinds of construction.

The economists conclude 'arguments that because construction spending activity has decline precipitously, so too should have employment, appear misplaced.' The drop in construction employment should be 'essentially done' by next spring.

http://money.cnn.com/news/
newsfeeds/articles/newstex/
AFX-0013-18162800.htm

Anonymous said...

The Sacramento region lost 2,600 construction and finance jobs in a year, reflecting the housing slump and its fallout on the mortgage industry.

The economic effects of the slowdown may also show up in other ways, said David Lyons, an analyst with the state. "It may also be showing up in income," he said. "We had a shortage of construction workers" so employment numbers are still fairly high, but workers "may be seeing a shorter season or shorter hours."

http://www.bizjournals.com/
sacramento/stories/2007/07/16/
daily58.html?from_rss=1

Anonymous said...

So why do you see allot of illegal immigrants hanging around places like Home Depot.

http://www.phillyburbs.com/pb-dyn/
news/103-07222007-1381531.html

This year, homeowners nationwide are expected to spend 1.6 percent of the value of their houses on improvements and repairs.

Part of the reason for the strong growth in the handyman business stems from the real estate industry's shift from a seller's to a buyer's market.

More people are opting to stay in their homes rather than sell their properties.

They are less likely to move and will invest in their homes to make them more inviting. So they may spend money to build a deck rather than buy a house with a deck.

As people cut back on excess spending like not taking that fancy vacation, they are dumping more money into their homes to make them more into vacation homes.

RE Investor said...

This guy is obviously not too bright. I am in the Real Estate business (landlord for many years) and if he gets his way, it may work at first while the lemmings think "Oh god, prices are rising again, better buy" and all the INEXPERIENCED realtors find some victims, but then when the true fundamentals catch up, it will be far worse than just letting it all tumble quickly - NOW - and then we can all move on. Besides, here in Phoenix, Hovnanian (never have been able to spell his name) homes are pretty much one step above a trailer home. You think the garage front homes are bad, you ought to see some of their communities....ugh. I think my 5 year old should apply for a job there as an architect, probably could not do much worse.