Homebuilders Planning for Brighter Future

Hovnanian Enterprises disappointed Wall Street this week with an earnings report that showed deep revenue and profit declines. But CEO Ara Hovnanian, who said that new home contracts have improved in recent months, sounded upbeat about the future. Hovnanian said the company would raise prices, cut incentives, buy land and reopen two projects it mothballed in Southern California and Arizona.

Hovnanian’s announcement is just the latest sign of new-found confidence in the housing market. In the latest BusinessWeek issue, I argue that the housing market’s strength is more broadbased than the real estate industry acknowledges. And the recovery is not just concentrated in foreclosure and other low-priced sales. Home prices appear to be rising in medium- and high-end markets as well, according to Case Shiller’s seasonally-adjusted Tiered Price Indices.

Builder and Realtor lobbyists are pushing for the extention and expansion of buyer incentives. They argue that the housing market cannot maintain its momentum unless the $8,000 first-time buyer credit is nearly doubled, extended through 2010, and given to all buyers, not just first-time buyers. The $8,000 credit is now due to expire after Nov. 30.

The $8,000 credit seems to have helped in spurring sales. It’s not clear what would happen if it is allowed to expire. Interestingly, Hovnanian said the expiration of the $10,000 credit for new home buyers in California in July did not hurt business signifantly.

I would say thus far, keep in mind it’s only been a few weeks, we haven’t seen a huge impact, so we are pleased with that. Part of that could be driven by the federal credit and that expires at the end of November, so you know, it’s hard to know what the impact of losing both of them will be and it’s hard to know what the impact will be after a greater period of time in California.

But based on the first few weeks, thus far things seem to be holding

Before it's here, it's on the Bloomberg Terminal.