Major Homebuilder Runs Successful Weekend Sale

It seemed to smack a bit of desperation at the time, but in hindsight it appears to look more like marketing genius.

Hovnanian Enterprises, Inc., one of the nation's largest homebuilders, threw open the doors of literally thousands of its newly built homes or those that were under construction last weekend and, in what media has described as a fire sale, offered deep discounts, sometimes in the six figure range, to buyers ready to make a deal.

Homes affected by the sale were located in 19 states. The biggest discounts were, logically, on the most expensive homes and generally ran in excess of 20 percent. Jeffrey Gold, a writer for the Associated Press gave two examples of Hovnanian's offerings:

• A 3-bedroom condo near the Hudson River was offered at 862,000 for the weekend; a discount of 22 percent or $240,000.
• A 2-bedroom home in Jackson Township, N.J. was discounted 25 percent to $30,501.

The sale started at 9 a.m. on Friday, September 14 and ended at 9 p.m. Sunday, September 16 and was heavily promoted in newspaper and broadcast ads. A Hovnanian spokesman had said that there would be no negotiating below the offering price and all sales contracts had to be signed by 9 p.m. on Sunday.

A week or so before the sale was announced Hovnanian reported that, after paying preferred stock dividends, it lost $80.5 million ($1.27 per share) during the second quarter of 2007. One year earlier the company reported a profit of $74.4 million or 1.15 per share.

Home builders generally avoid lowering prices, preferring instead to offer buyers upgraded appliances, construction materials, landscaping, or finishes as those do not show up on the public record and thus do not disadvantage the builder in future sales negotiations. That, along with the dismal earnings report, was among the reasons that the term "fire sale" was being so freely bandied about on cable television

Well, whatever it was, it apparently worked. David Lee Smith reported in a Motley Fool newsletter on Friday afternoon that "Hovnanian's results apparently exceeded its expectations, garnering sales of more than 2,100 homes."

Smith, however, added the caveat that, with cancellation rates of new contracts running at about 33 percent, it remains to be seen how many of the builder's weekend sales will actually close. It is a good bet, however, that the company will still be euphoric if it lowers its bloated inventory by 1,400 homes.

So, will Hovnanian do it again? In pre-sale interviews its officers said this was a one-time event, but that is just a smart marketing ploy. Will other builders follow suit and offer one time deep discounts? As word of Hovnanian's success spreads, and it apparently only just leaked out today, it would seem logical that others among the major builders follow suit but as Smith points out, "if any other builder has (so far) gotten as draconian (in discounting) as Hovnanian, it's done so very quietly.".

Meanwhile, the welcome mat is out at two major Toll Brothers' developments in the Hilton Head area of South Carolina the weekend of September 29 and 30. Hampton Hall and Hampton Pointe, one of which has been heavily promoted as featuring Martha Stewart designs and finishes, are inviting all to an open house which will feature "Activities, Refreshments, and Fun for Everyone."

Martha probably won't be there and no discounts are implied.