Facing continued deterioration in the U.S. housing market, upscale home builder Hovnanian Enterprises Inc. said on Monday that it expects to take a charge of $90 million to $110 million related to land impairments and write-offs.
As housing demand has cooled, land values have fallen and developers have stopped building new homes to avoid being saddled with ones they cannot sell.
Analysts, on average, expect the company to report a third-quarter loss of 11 cents per share, according to Reuters Estimates. In the year-earlier period, Hovnanian reported a profit of $77.4 million, or $1.15 per share.
On a preliminary basis, Hovnanian said it closed on the sale of 31 percent fewer homes in the third quarter ended July 31 than it did a year earlier. Net new contracts for homes fell 24 percent, excluding unconsolidated joint ventures.
The third-quarter cancellation rate was 35 percent, compared with 33 percent a year earlier.
Hovnanian's announcement comes less than three months after the company withdrew its fiscal 2007 earnings forecast, saying the protracted slowdown in the U.S. housing market had made it difficult to make accurate predictions.
After several boom years, the U.S. housing market has slowed sharply. A cooling economy and a credit crunch spurred by rising defaults among subprime borrowers -- those with less robust credit histories -- has prompted many buyers to step back.
Those problems have spooked the overall mortgage market, tightening credit standards for even those with good credit histories.
We think the recent challenges in the mortgage market have led to worsening trends once again, Bank of America analyst Daniel Oppenheim wrote in a research note.
With sales drying up, investors have been focused on the home builders' abilities to repay their debt. Hovnanian said that it expects to be in compliance with all of its debt covenants as of July 31 when it finalizes its results.
The Red Bank, New Jersey-based company said it was still reviewing financial results and impairment charges, and plans to release third-quarter results on September 6.
Hovnanian shares were down 3 cents to $14.67 in late morning trade on the New York Stock Exchange.
Separately, shares of D.R. Horton Inc., the largest U.S. home builder, fell 65 cents, or 3.7 percent to $16.79 after J.P. Morgan analyst Michael Rehaut lowered his rating on the stock to neutral from overweight based on its value relative to its peers.
Beazer Homes USA Inc. shares were off $1.19, or 8 percent, to $14.00 following the company's late Friday disclosure that it would delay its quarterly filing with the U.S. Securities and Exchange Commission after its audit committee found that its former chief accounting officer might have recorded reserves and accrued liabilities in incorrect periods.
The benchmark Dow Jones U.S. home builders index was down nearly 4 percent.
(Reporting by Scott Malone, with additional reporting by Ilaina Jonas and Lilla Zuill in New York)