Hovnanian Enterprises at 16th Annual Midwest Ideas Conference: Housing Market Strategy

On Wednesday, 27 August 2025, Hovnanian Enterprises (NYSE:HOV) participated in the 16th Annual Midwest Ideas Conference, where CFO Brad O’Connor discussed the U.S. housing market’s current challenges and the company’s strategic initiatives. While the company reported a revenue increase, it also faced margin pressures due to mortgage rate buy-downs. O’Connor highlighted Hovnanian’s shift towards an asset-light model and spec homes to address market demands.

Key Takeaways

• Hovnanian’s Q3 revenues rose by 11% year-over-year, but margins fell due to mortgage rate buy-downs.
• The company is expanding its land holdings, now controlling 40,000 lots, with 86% under option.
• Hovnanian aims to refinance secured debt into unsecured debt within the next 12 months.
• The company is focusing on spec homes to offer quicker move-in options and rate lock certainty.
• Hovnanian’s debt-to-cap ratio improved significantly from 146% in 2020 to 47.9% in Q3 2024.

Financial Results

• Q3 2024 revenues increased by 11% year-over-year.
• Gross margins decreased by nearly 500 basis points due to mortgage rate buy-downs.
• SG&A expenses saw a slight decrease, benefiting from top-line growth.
• Debt has been reduced by $770 million since 2019, with a debt-to-cap ratio now at 47.9%.
• Projected Q4 2024 revenues are expected to be similar to Q3 2024, with a slight decrease in gross margin.
• Adjusted EBITDA for Q4 2024 is projected between $77 million and $87 million.

Operational Updates

• Hovnanian increased its land control from 29,000 lots two years ago to 40,000 in Q3 2024.
• The company has shifted to an asset-light model, with 86% of lots controlled via options.
• Spec homes now account for 80% of sales, providing quicker move-in options.
• The company maintains a stable community count of approximately 146 open for sale communities.
• Operations span across the Northeast, Mid-Atlantic, Southeast, Texas, Arizona, and California.

Future Outlook

• Hovnanian plans to grow its community count in the fourth quarter and into 2026.
• The company aims to refinance secured debt into unsecured debt within the next year.
• A long-term debt-to-cap target of 30% is maintained.
• The sales strategy includes operating at higher than historical average of QMIs, even with stable rates.

Q&A Highlights

• The goal is to refinance all secured debt within the next 12 months.
• Any decrease in mortgage rates, along with strong employment, would benefit the market.
• Customer preferences have shifted towards mortgage rate buy-downs over price reductions.
• Regulatory and land approval processes continue to pose challenges.

Readers are encouraged to refer to the full transcript for a detailed understanding of Hovnanian Enterprises’ strategic insights and financial performance.

Full transcript - 16th Annual Midwest Ideas Conference:

Philip Cooper, Managing Director, Three Part Advisors: At the, Midwest Ideas Conference. I’m Philip Cooper, managing director at Three Part Advisors. Our, next presenting company is Hovnanian Enterprises, traded on the New York Stock Exchange under HOV. Our, from the company today is, Brad O’Connor, chief financial officer and Jeffrey O’Keefe, VP of Investor Relations. I’ll hand it over to Brad now to, give you the presentation.

Thank

Brad O’Connor, Chief Financial Officer, Hovnanian Enterprises: you, Philip. So I’m gonna talk about our company, Hominion, and and a little bit about the home building market environment today. And then after I get through that presentation, I’d be happy to take any questions. So starting with The U. S.

Housing market, this is a chart of housing starts going back to 1959. Obviously, housing production, you can see the cyclicality in this industry up and down over the period of time. The hashed line horizontal line there at $1,400,000 is the average over this time period of starts per year. And what’s evident on here is the oversupply that was built heading into the great housing recession was then followed by a significant the most significant trough over this whole time period and for an extended period of time. And as a result, if you looked at the average over and under built over across this whole period, we’re now $5,500,000 starts short of where we would be if you think that the average of 1,400,000.0 is what we need to have been building.

So we have a pretty good shortfall in housing production that’s occurred over the last decade. And it’s in our view, with housing production occurring, you can see across the bottom the growth in The U. S. Population, housing formation, etcetera. So there’s a real demand for new housing in The U.

S. The other thing that’s been happening since COVID is with people in their homes at lower mortgage rates than they can get today. They’re somewhat locked in, not wanting to move and experience a higher mortgage rate. And as a result, there’s a lot less listings on out there for existing home supply than what’s been historical. So similarly here, we go back to 1982, and we show you what the the bottom kinda thicker line going across horizontally is just existing home supply average at just over 2,000,000 homes listed.

And then the line above that is just adding in new homes that are generally for sale in the market. And so you can see where we’ve been since twenty eighteen ish and down COVID, it decreased even further. That supply of existing homes shrunk significantly, actually got below a million, so below 50% of the average. It has started to come back. More listings are coming on the market and you hear that in news today.

However, we’re still well below the long term average. So there’s not as many choices for customers that do need to buy homes and they come to the new home builders. That’s been helping our industry over the last couple of years. The other advantage that we have versus existing homes besides being newer and more up to date, energy efficient, those types of things, is we and most of the other builders are offering mortgage rate buy downs to help combat the higher mortgage cost that customers are experiencing. Existing home sellers don’t wouldn’t typically offer that kind of incentive.

Mortgage rates, I think everybody is well aware of what happened with rates. Historically speaking, our current mortgage rates are not out of whack at 6.58%. It’s actually on the lower side if you look going back on this chart. However, that significant jump that occurred in 2022 was a shock to the system in terms of no time to adjust. And therefore, it slowed the market quite a bit when that occurred As a reaction, in order to continue to maintain sales pace, we and other builders started offering incentives, including mortgage rate buy downs that get customers back into mortgages that are around 5%, let’s say.

It costs us something, impacts our margin, but it’s worth it to keep selling homes and help the affordability for our customers to be able to take advantage of buying a new home. And I guess I said before, they can’t really do that on an existing home when they’re out looking at home choice. For us specifically, we are in the top 20 homebuilders in the nation. We deliver around 6,000 houses a year over the last five years or so. We are planning to grow that number going forward, and we’ll get to that shortly.

The markets that we’re in are shown on the bottom left of this slide, and it also tells you the percentage of revenue for the trailing twelve month period ended July for those segments. But we’re in the Northeast from New Jersey down through Virginia. We do have operations in Cleveland, Ohio. In Pennsylvania, we’re really just around the Philly Lehigh Valley market. We’re not in the entire state of Pennsylvania.

And then if you go down the the East Coast, we’re in South Carolina, Georgia, and Florida. In Florida, we’re in Orlando and Southeast Florida, which goes from Palm Beach to Steward up towards the Space Coast, so on the East Coast there. In Texas, we’re in Dallas and Houston. In Arizona, we’re in Phoenix. And then in California, we’re in Southern And Northern California, but more inland.

So Southern California Inland Empire and in Northern California, more in the Central Valley Sacramento area. On the bottom right, you can see with the lots that we control, we control 40,000 lots. That’s up pretty significantly from about twenty nine thousand two years ago. And that’s where that growth that I mentioned is going to be coming from in the future. And you can see the segment breakdown of that lots controlled.

While it looks heavily weighted to the Northeast in terms of percentage, that isn’t necessarily how the deliveries will play out. The Northeast tends to have more regulatory constraints and therefore takes longer to get lots from control through the approval process into delivery. And so the waiting will still come out probably more balanced than this looks. We’ll find more deals for the West and Southeast in the meantime and they’ll end up being similarly sized. And then in the upper right, homes delivered by product type, we believe that it makes sense to be diversified across product types and not just focus on first time buyer or luxury buyer.

Some of our peers are more focused in their product type. We think there’s an advantage to being diversified because there are times when a market segment, a product type will outperform than versus others. And for example, during COVID, the first time buyer really came back to the market, and it was important to be in that first time buyer space. As mortgage rates increased, the first time buyers were the ones that were most impacted from affordability perspective. But active adults or active lifestyle communities, which is really our 55 and older communities, they’re downsizing from existing homes.

They don’t really need mortgages or their mortgages they need are much smaller, not impacted by rates. And those buyers haven’t stayed more resilient in the current environment compared to first time buyers. So we feel like that’s important to maintain that diversification. For our third quarter that just ended in July, we’re in October year end, so we’re kind of an off quarter reporter, but we ended our third quarter at the July. Our revenues were up 11% from the year before.

Our margins were down almost 500 basis points, and that’s related to the incentives that we’re offering for mortgage rate buy downs to maintain sales pace. It’s very important for us. We believe that we need to continue to operate and work through the land that we own. And if it takes incentives to do that, that’s what we need to do. And so we have been under more margin pressure impacting our margins, but we’ll I’ll show you in a minute that’s helped us maintain our sales pace.

Our SG and A came down a little bit as a result of the top line growth. But our pretax, you can see was up over the prior year. From a sales perspective, what we call contracts, we sell the homes, not only deliver, but as we sell the home, we count those as contracts. What this slide depicts is the year over year change for each individual month reflected, and the arrows show you the change for that month. And what you can see here is volatility.

We’ve had months that show growth improvement, other months that show down. Focusing more near term in the last four months, you can see April was down 9%, May was down 4%, June kind of balanced out, we were up just a little bit, and then July was stronger at plus 7%. The point here though is that it’s been a very choppy market with rates the way they are. A little bit of news changes how people feel about it, the psychology changes about from homebuyers. How are the what are their jobs look like?

What’s happening on the job front as and what’s going on in our economy? What’s the impact of tariffs? What’s gonna happen with rates? You know, what’s the Fed gonna do? So there’s all kinds of noise that’s happening all the time, and that impacts the psychology of home buyers.

And so you see this volatility depending on what’s going on in the environment at that particular time. Spec homes or what we call quick move in homes are basically any homes that have foundation started. So we’ve actually started putting sticks in the air, and they don’t have a contract on them yet. Historically, we were more of a to be built builder or build to order builder. 60% of our sales went for build to order, and we would build the house specifically for a customer.

In the current environment, because when mortgage rates jump so much and customers needed to have certainty about the rate that they were gonna buy their home at. And because we were able to offer rate buy downs on sixty to ninety days out, you can’t offer a rate buy down on a to be built home that’s not gonna deliver six or seven months because it’s just too cost prohibitive to lock in that rate that long at a discount. So we decided at that time to shift and offer more spec homes, more QMI homes. And so you can see that we went in COVID, you couldn’t even build homes fast enough to have any. So we were down around one.

But after the rates jumped in May ’2, we, late ’twenty two, articulated we were going to move in this direction. We were going to target about eight QMIs per community. And you can see we got there at the end of last fiscal year in October. If I showed you back to that monthly sales slide, you would have seen that October and November were actually really strong sales months, and we were anticipating a really good spring selling season. So we started more homes in November and December in anticipation of good sales in January, February, March.

Sales slowed down. And so we ended up with 9.3 specs per community in January. We reacted obviously to those slower sales, slowed down our starts pace. And you can see the last two quarters, we’ve been bringing it back down and we’re back closer to that eight target that we’ve stated publicly. We still think that’s a very important strategy.

80% roughly of our sales are to our now specs as opposed to the old way when it was only 40% of our sales were specs. So it’s critical at this current environment to be able to have homes for someone to move into in sixty to ninety days, lock in their rate. If we if they take the incentive for mortgage rate buy down, they can do that. But that’s that’s the opportunity. If you don’t have those available, you can’t offer those types of programs.

I suspect that even when rates come down or get more stable and we don’t have to offer those types of incentives, we will probably operate at higher than our historical average. There are some efficiency benefits that we’ve learned from having more QMIs because we can start production on the schedule that we want to start it on as opposed to if you’re tied solely to to be built homes, you’re only starting houses when you sell them. And you don’t sell homes evenly. You don’t sell one a week. You might sell three and then none and then three.

And it’s much easier and much more efficient from a production standpoint to be able to start homes more evenly. So I think you’ll see us continue with some level of QMIs above our historical average even after rates, the need for rate incentives goes away. Community count has been pretty stable over the last year. It was exactly the same as a year ago. There’s been some change in between.

But basically, around this 146 open for sale community mark, just for those that don’t follow the homebuilding industry, that’s not the same 146 communities. They’re they probably within that time frame, we probably closed half 75, whatever 70 to 75 of those and opened 75 new ones. It’s that’s how much churn is in these numbers, but we stayed stable at about 146. But we do expect our community count to grow further in the fourth quarter and then into twenty twenty six. The reason we think that will happen or expect that to happen is our lots controlled.

So what this chart shows you is the lots that we controlled, the number of lots we had controlled at each of these dates. So if you go back to 2023, so roughly two years ago, we had 29,000 lots controlled. 20,000 of those, almost 21,000 were controlled by option and 8,000 were controlled by being owned. The good thing about this chart is not only does it show growth, and we’ve grown to 40,000 at the end of the third quarter, came down a little over the last couple of quarters because the market has gotten more challenging, so less land deals are underwriting and that we’re putting under control. We’re not going to put things under control that aren’t going to work financially.

But you still see that significant growth from 29,000 to 40,000. But even maybe as important is what’s grown in there is it’s controlled by option. There’s 34,800 by option and only 5,000 own. We are really moving as much as we can to an asset light or land light model. You hear other builders talk about that as well.

We think that’s a much more efficient way to use our capital. You can do more communities with less capital if you take that approach. There’s also some risk avoidance or risk benefit to that approach in that if the market were to go downturn, you’re not sitting on land you own and you have to absorb that loss on your own. You can actually choose to walk away from the option and just give up the deposit dollars and move on and take your capital and go on. So there’s additional benefits to that approach, not just the efficiency in the capital.

This is over from 2015 to today. This chart shows you how much we’ve changed our view of using option lots, and we’ve been pushing this strategy significantly over the last few years. And you can see we went from under 50% back in 2015 to 86% of our lots are controlled by option now. And we would go all the way to 100% if we can. There’s not always a way to put every deal under option, but we’re certainly working towards that goal.

So we would like to continue to push this even further. The reason we believe I talked about some of the risk avoidance, but in addition, what this chart is meant to show you is this is us and our peers and where they all stand in using option lots as opposed to own lots. And we’re fourth highest on this chart. The others to our right are Lennar, MVR and DreamFinders. What that asset light model helps you do is turn your inventory faster.

So the bottom half of this chart shows you inventory turn for these same builders. And you can see in that case, we’re actually third. DreamFinders is just behind us in that one. But the point here is that those that are on the right on the top, in terms of asset light, are also the best at inventory turn. And the reason that’s important is those same builders that are on the right on inventory turn are the ones that are the best at return on investment.

So the names on the right hand side of this chart, excluding Pulte, I’ll go back for a second. Pulte is kind of the anomaly. They’re doing a great job of getting returns even without being as land light as the others. But everyone else that’s to the right on that land light and inventory turn chart are the ones that are on the right for return on investment. The other point on this chart is we’re fifth highest of everybody, but we’re first amongst our size homebuilders.

The ones to our right are significantly larger than us and have better operating leverage and other things, and that’s helping their return. So we think this is a very important part of our strategy to be asset light and high inventory turn. I think it’s helping us deliver outsized return on investment compared to our peers. This slide will show you price to book. Here, we’re trading right near median, just a little above it.

And so probably relatively fairly priced from a book perspective. But on a PE basis, we’re at the bottom. And one of the reasons that I think we’ve been and this has historically been the case for the last decade really. And for a long time, we were significantly more levered than everybody else on this chart. We had a lot of debt coming out of the great housing recession.

Had to do a lot of work to even be here today. We’ve made a lot of strides. I’ll show you in a minute the improvement we’ve made in our debt to cap. We’re not significantly over levered compared to the rest of these peers any longer. And I don’t think we’re getting the full benefit of the operating performance that I showed you here, that we’re outperforming all these people.

But from a PE basis, we’re at the bottom. So we believe we’re undervalued compared to our performance. And this isn’t just a one year anomaly, this has been the case for the last probably four or five years. This chart is depicting kind of the same thing. It’s just plotting EBIT ROI to price to earnings.

And what it will show you if you kind of draw the regression line through here, you would see that we’re on the far bottom right of the line because we have the highest EBIT ROI, but we’re one of the we’re the lowest on PE. So we’re not make we’re not being trading on a PE basis in line with where our return performance is. Getting into our balance sheet. From a liquidity perspective, basically since the Great Housing recession, we basically worked with a liquidity target at quarter ends of $170,000,000 to $245,000,000 You can see that since 2020, we’ve been either well above that or within that range. When we were well above it, the market was really strong.

And during COVID, we were generating a lot of cash. We were I’ll show you in a minute, we were actually Even while it was well above it, we were paying down debt as well. We just couldn’t find deals fast enough to reinvest, so we had excess cash at quarter ends. You can see that more recently, we’ve been able to find deals. You saw the growth in our controlled lots.

So that’s helped us put some of that liquidity to work. But we’re still well within our liquidity targets today. From a debt perspective, this is our maturity ladder. Again, this looks significantly better than it did three or four or five years ago. But it’s still more complex than our peers.

These are secured debt tranches in the green, light green and gray, and they’re different liens in terms of priority. So 1.25, 1.5, 1.75 makes us more complicated to deal with our debt structure. It doesn’t trade. It’s not very liquid. It doesn’t trade a lot.

So it’s not ideal, is what we were kind of forced to at the time. The good news is because our debt to cap has now improved dramatically, we’re getting to the point where we can refinance this. Hopefully, the very near term, we’ll refinance this into unsecured debt, push it out a little bit further as well and get rid of this lien structure. The other point to make is this is about a weights out to about a 10% borrowing rate across this debt structure. We but the debt trades around when it does trade, high sevens around eight.

So we think we could when we refinance this, we could do something around eight. So that would help us significantly from a annual interest cost perspective when we can do that. The only reason we haven’t done it already is there’s a cost to taking these out. There’s prepayment penalties. So we’re balancing the prepayment penalty with the timing of when we want to do that refinancing.

From a balance sheet metrics perspective, you can see that from 2019, the growth in our equity in the upper left, dollars 1,300,000,000.0 of growth up to $835,000,000 We were actually negative back in 2019. The debt, we’ve paid down our debt by $770,000,000 over that time. And so on the bottom, you can see what that has done to our debt to cap. We were 146%, 150% going back to 2020. We’re now down to 47.9% at the end of the most recent quarter.

So significant improvement in our balance sheet. We’re not the same company that we were five or six years ago. And I don’t know that that’s fully recognized yet, And that’s partly why I think our PE isn’t quite where I think it should be yet. But we continue to chip away at it, try to make sure everybody understands what’s going on with our performance, our balance sheet improvement. And hopefully, we’ll continue to see our stock price go up and get paid for those that performance.

Our guidance for the fourth quarter that we came out with a week or two ago, and we have this compared to the third quarter that just ended. You can see that our revenues will be about the same at the midpoint. They’re basically in line with the third quarter. Gross margin, we actually do project to be even down a little bit further. The incentives it’s taking to get the sales has been that much more expensive in terms of rate buy downs and other incentives.

So that has been a challenge, but we need to keep sales pace going and it’s important to continue to get that inventory turn. SG and A basically are going to be in line with the third quarter. And then pre tax, we expect to be a little bit higher. There’s a and we talked about it in the guidance. There’s we expect to consolidate a currently unconsolidated joint venture.

When you bring that on its books, get the market to fair value. So there’ll be a little bit of a gain or other income related to that, that’ll help us have more pretax in Q4 than we did in Q3. The additional items that weren’t on that previous chart that we do give guidance on are our income from joint ventures. We have probably more joint ventures than most of our peers. And the reason we do joint ventures is when we can’t do a community on a land light basis with an option lot strategy.

And there’s various reasons you can’t do that. Sometimes the duration is too long and a land light partner doesn’t want to be in the community for more than four years, let’s say. Or in our active adult communities, we like to do, it’s more like a resort living. So we do significant clubhouses with pools and things like that. So there’s a lot of capital that goes into that.

Landlight partners don’t typically like to be the ones investing those dollars and stuff like that. That would be our money in that situation. So in those cases, we would rather do a joint venture with a partner who’s willing to invest with us into those types of investments, longer life, rec center, etcetera. And so you’ll see us continue to use joint venture for those types of communities. So anyway, this quarter, we’re expecting between 8,000,000 and $12,000,000 from income from JVs.

And then that translates, I showed you the pretax number, but the adjusted EBITDA number will be between 77,000,000 and 87,000,000 for the quarter. And that’s that’s it for my slides that I present to present. So I’ll I’ll take any any questions. The near death experience of? The Great Housing Recession?

Okay. So the question was just for those that may be on the webcast, how have we insulated ourselves from a near death experience that occurred during the Great Housing Recession? I think that, to be perfectly frank, we’re not there yet. When we went into the Great Housing Recession, we had a targeted debt to cap of 50%. We were right at our target.

And if you went back and looked at the housing permit chart I started at the very beginning, in any previous downturn, I think that would have been fine. But that downturn for the great housing recession was so severe and much more significant than any previous downturn. It proved that 50% debt to cap wasn’t the right target. So our current target is 30%. We’re just not there yet.

So we’re continuing to work our way to get to 30%. I’ll feel much better when we get there. In the meantime, we just continue to plug away. Now some of the things that we have done differently that I think will help us even if we’re not at 30% debt to cap is the land light strategy that we’re using and having many much more of our lots controlled by option means we’re not sitting on land. When we went through the great housing recession, we had $2,000,000,000 worth more than $2,000,000,000 worth of assets of inventory that we had that was our write down, more than $2,000,000,000 of land we owned.

We don’t own that much land anymore because we do it all through options. So we would lose our deposits, but we would not be stuck with significant land write downs that you then have to work through that land. We could walk away from our deposits. We would generate cash from the existing homes and lots we have, and we could invest in new deals at lower prices because what happens in that event is land prices drop and you can invest in new land at much lower prices and make money sooner and much more quickly than we could in the great housing recession. The example of that is NVR.

NVR, who was 99% option when the great housing recession happened, I think had maybe it’s only one quarter, but I think it was one year of losses. And then they were back to making money because they walked from all their deals, generated cash from the land that they and the lots that they had, and started over again basically and bought land at cheaper prices. And I think we’re much closer to a position to be able to do that than we were the last time. Well, I think to be to be fair, we’ve always been a bigger user of options than most, but we just made it a bigger priority about three years ago and really pushed for it. Really pushed for it.

Like, we basically told divisions, you’re not doing deals unless we can do them land light. So there’s not really many deals we do any longer that aren’t that way. It was it’s really a disciplined decision and saying, look, yeah, that’s that might be a great deal, but if we can’t do it land light, we’re not doing it. And I think that’s how MVR has always operated. They came out of bankruptcy, and that’s what forced them in that direction.

And it gave them the discipline to only do it that way. And I think you’re starting to see both us and others have that discipline to say that’s the only way we’re going to do those deals. Yep. So the question was what’s keeping us from getting building supply back to where it needs to be based on that permit chart at the beginning that shows we’re undersupplied. And I think one of the things that’s keeping us from getting there is the regulatory environment.

So getting land through the approval process. Certain geographies, that’s very difficult. Other geographies, not as much. But that’s definitely a challenge. It takes a lot longer than we think sometimes to get communities through the approval process, so that causes delays.

Pricing, land pricing, affordability from the customer’s perspective and what customer can afford. Mean, we’re only going to do deals that where we can find land that will actually underwrite at current pricing. So if the land sellers aren’t willing to sell their land at those prices, then those deals never come to fruition until pricing goes up enough to cover the cost of the land. So there’s probably a number of factors that are in there. COVID, I think, that even though there was demand for homes, there wasn’t enough supply of lots.

It takes time to develop lots, get them through approval. It takes time to make sure you have enough labor and materials. So there’s limiting factors. I would say that today, material and labor aren’t a problem. But getting land through the approval process and having it be there and available at the right price is probably the prohibiting factor at the moment.

Is that permitting getting any better or worse? I would say it’s, if anything, but probably just about the same. You know, it’s something that I don’t think I think local governments especially talk about needing housing, but then they don’t want the housing in their town, and so they don’t approve things. It’s like, you can’t have it both ways. I think that they look at our debt to cap, and they also look at our EBITDA generation, and they underwrite it that way.

Unidentified speaker: Eight notes realistically, would you think about ’28?

Brad O’Connor, Chief Financial Officer, Hovnanian Enterprises: No. No. If you go back So on the maturity ladder, it would be my intention I think I mentioned this, but my goal is to have all of this refinanced in the near term, like next twelve months. All that secured to go away because one, it’s expensive. It’s all 10% on average.

Two, it’s secured, which is complicated and doesn’t trade very well and makes it more difficult for us to trade at what I think we should trade at. So what I would really like to have is all unsecured at maybe two tranches of 400 ish million, a little above 400,000,000. So it’s liquid trades and really shows where we should trade so that the next time I need to refinance, which is a while, but the next time I’ll actually have a good marker for where I should trade. Because right now, you know, I can use comps. I can use a couple of comps in the industry to try to mark where I think we should be.

But our secured debt doesn’t really give us a great comp because it just doesn’t trade very well.

Unidentified speaker: So twelve months, maybe those would be up.

Brad O’Connor, Chief Financial Officer, Hovnanian Enterprises: I would I would hope so. Yeah. Yep. And the only Like I said, the only reason we haven’t to date is the cost. So every day that I wait, some of the make holes go down.

At some point, it’s gonna make sense. The payback from the saved interest is gonna make sense to absorb the cost of the of the call premiums. I love this question. At what mortgage rate things will thaw and will back to a hot market? Hot market.

You know, it’s funny. I don’t I don’t know the answer. I get that In fairness, I get that question all the time. I wish I knew the answer. I showed you historical mortgage rates and 6% if you went back not that long ago was a pretty good rate.

So I don’t know if it’s that they need to get back to some level or people just need to get comfortable that that’s the realistic rate. Not sure which of those two answers. What I would say is that any movement down in rates will likely be helpful, assuming that the rest of the economy stays as it is. Meaning, there’s not a big job loss, you know, employment issues, things like that. Because regardless of rate, if there’s employment problems and job, you know, job loss increases significantly, that’s never good for us either.

Right? You need, ideally, rates to come down a little, but keep employment relatively strong. Then I think you’d see a bounce back in the market. Any other questions?

Unidentified speaker: The customer would react better to a price cut or a mortgage?

Brad O’Connor, Chief Financial Officer, Hovnanian Enterprises: That’s a really good question. And the reason I laugh is because it depended on the time that you asked me that question. So when rates first jumped in 2022 and we started offering incentives, including mortgage rate buy downs, And even to that to then and even today, when we offer those incentives, we don’t only offer a mortgage rate buy down. We basically say, we have this mortgage rate buy down, it’s worth x dollars, dollars 30,000. Can use it towards the mortgage rate buy down or you can use it to finance and closing costs.

You can use it towards a off the price. So it really came down to what the customers wanted. Right? And initially, more of them would take the price reduction and not the rate reduction. And I think it was because they thought that the rate increase was going to be temporary.

And they were gonna be able to refinance sometime in the not too distant future, and they’d be refinancing a lower priced home. Right? The longer we went with higher rates, the more people shifted to actually taking the mortgage rate buy down because they started to see that that rate reduction wasn’t likely coming in the near future and they wanted the lower rate for their payment. And the other thing that happens is in some cases, even with a price reduction, the person can’t get approved for their mortgage because the monthly payment is still higher than if you took the same $30,000 and applied it to a rate buy down. Because buying down your rate by a 150 basis points lowers the payment on a thirty year mortgage a lot more than $5,030,000 dollars off the price at the higher mortgage rate.

Right? So you have to who can what gets you qualified to even buy the home? You have to do the rate buy down. So there’s all those things happening in between, but there’s no doubt that the more of our customers this year have taken the rate buy down than a year ago, even though we were offering the incentive both of those times. Okay.

Thank you all. Appreciate

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