Homebuilder Offers 3-Day Fire Sale
A: What do you do when you are a major homebuilder with building inventory, weak buyer demand, pissed off shareholders, deals in contract going sour because loans aren't closing, and weak sales numbers? You cut your prices by 20% for the weekend of course! A trend perhaps?
The news via Marketwatch.com:
Home builder Hovnanian Enterprises Inc. (HOV: 11.00, +0.97, +9.7%) from Friday through Sunday is running a sales promotion featuring price incentives as high as $100,000 to attract buyers in a slumping housing market. The company said the event, which it is calling the "Deal of the Century," features a 72-hour sale at 31 neighborhoods around the country. Separately, Chief Executive Ara Hovnanian said the bottom of the housing market is "very near" but a recovery won't begin until 2009, according to a press report. "The bottom is very near but I think it's going to stay along the bottom for a while before a recovery," Bloomberg quoted Hovnanian, who said the builder hopes to sell 1,000 homes this weekend
The news of this major homebuilder taking action isn't shocking but the level certainly is! Certainly sucks for Hovananian customers who signed a contract over the past few weeks (play game over jingle from Pac-man now).
This to me signals a very bad quarter for the homebuilder who decided to make a longer term decision and take the short term loss that comes with it. A good move all around although a longer timeframe may have been warranted. The goal is to sell 1,000 homes this weekend in an attempt to get more deals done, get more revenue lined up, and to take away some building inventory. Just imagine what will happen if ALL of the major homebuilders decide to do a fire sale like this and appease to the buyers that have been waiting on the sidelines for a good deal! This certainly would peak my attention if I were one of the vultures flying around for scraps. How would that effect total inventory that has been building for so long? Great move by Hovnanian and I expect others to follow. The problem is the deal is only being felt in 31 neighborhoods across the country! I'd be very curious to see the results if they offered a similar deal to ALL of their markets!
Unfortunately, these homebuilders don't have a presence here in Manhattan and our marketplace is experiencing the opposite in fundamentals than most of the country with our tight inventory, foreign demand via the weak dollar, strong jobs market, low rental vacancy rates, and healthy buyer pool. I'm yet to see any real action by developers here by offering incentives to buyers other than what I read on Curbed.com the other day in their post "Signs of a Slowdown in New Development Deals".
Comments (4)
Thanks for keeping us informed, Noah.
Interesting development, although the "New York is a different market" mantra remains.
I think we at the sidelines can still wait for a couple of years to see how the New York market is going. And you don't have to call us "vultures". A better term would be "smart buyers". :-)
Posted by Bobby | September 14, 2007 7:45 PM
Hey Bobby - vultures, in investment terms, are in fact smart buyers!
There is absolutely nothing wrong with waiting on the sidelines for fundamentals to change in your favor and a better deal to present itself.
Didnt mean to call these types of buyers vultures in the bad sense, just to use the term in an invesment style to describe the current Manhattan marketplace as having plenty of buyers waiting on the sidelines. I got this when I wrote the peice on vultures a month or so ago.
Im one of these vultures myself and when the time is right, Ill gladly buy some scraps if deal presents itself!
Posted by Noah | September 14, 2007 8:37 PM
That sucks considering that I signed my contract about a month ago. But dont be fooled, these incentives come and go. I also got an incentive deal and they cut my price by about 150k, paid for my closing, and bought me 2 points. The price cut is not entirely accurate tho, because I'm sure that it is inflated. If anyone is buying in edgewater,nj this weekend, shoot me a mail. I'm curious what kind of deals are going on.
Posted by xjkix | September 16, 2007 1:08 AM
Hovnanian offering $100,000 off homes in their inventory is a good start. However, if a $600,000 home is 20% overvalued to begin with (and probably is) its only bringing it down to market value where it should be so its no bargain. In addition, we may not even be at bottom and at a $100,000 discount, someone may still be overpaying.
Posted by spanky | September 17, 2007 8:20 PM