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Hovnanian's PRICING BLOODBATH touted as a success

The headline last week (as pointed out by exceptional Realtor MarQuis Rhodes of Boise, Idaho here http://activerain.com/blogsview/204651/The-six-figure-discount) was that Hovnanian was going to slash prices by $100,000+ to move inventory. Image the "Welcome to the neighborhood, sucker!" recent buyers must have felt when they saw this event unfold. Ooops...there goes the equity!

Hovnanian is calling their "Deal of the Century" event a smashing success! They reported 2,100 gross sales, including "about 1,700 contracts and more than 400 deposits." Gosh, wouldn't it have been nice to see how these so-called sales compared to other weekend events? I'm also perplexed that they would boast 2,100 "sales" when they took only 400 deposits. I've never counted a real estate commission until the money is in the bank. Too much can (and sometimes does) go wrong.

The slash and burn doesn't strike me as a great selling tactic for a number of reasons. First, it hurts comps. Second, it hurts recent buyers. Third, it hurts other builders by spurring this race to the bottom. For buyers it can be a bonanza. But if the homes were overpriced to begin with, then it's not really price slashing...it's a realistic (and necessary) price adjustment.

Is this the only way to salvage the real estate market? Aren't there other ways to entice buyers without pushing the entire market down?

The news: http://www.reuters.com/article/coMktNews/idUSN1733068820070917?rpc=11

Posted by Jason Romrell on 09/17/2007 03:02 PM

Comments (3)

housing market, downturn, crisis, slash and burn, real estate

3 Comments on Hovnanian's PRICING BLOODBATH touted as a success

IT IS NOT A SALE!!!!!!!!!!!!!

It is market price

got equity?

09/17/2007 03:19 PM

by Josh Hahn (www.thehousingbubble.com)

Jason - Everyhome owner in every neighborhood faces this dilema. Prices go up and down based on market conditions at that time. The only people that get hurt are those that have withdrawn equity only to see the value of their home go down. The decrease in property value may be painful, but the bigger pain is the result of a decision to use their home as an "ATM". People that bought in a new development last year or last month face the prospect of seeing the value of their homes go down as well. If the home was purchased with the intent of making a quick return on investment, they have mistaken housing for penny stocks.

The rapid increase in property values that accompanied low interest rates and loans made to anyone with a pulse was an aberration. If you review the average increase in property values over twenty years, you will find that it is about 6% which is double the average inflation rate but not really a "killing". Homeowners that stay put for a few years will be minimally impacted by price corrections. We often overlook the fact that if prices go up, usually all price go up and when prices go down, usually all prices go down. That would seem to indicate that the true measure of the value of the property is relative to the overall market and not the house next door.

Hovnanian's pricing was far from a bloodbath. The impact of living in a neighborhood that has 20% of the homes unoccupied has it's impact as well. Of course, they could just let the homes sit there and wait for the market to correct. I would prefer the path they have taken and would encourage anyone selling to accept the reality of our market and make the proper adjustment in their home as well.

09/17/2007 03:36 PM

by John MacArthur The MacArthur Group (Long and Foster Real Estate, Inc.)

John, thanks for a well reasoned response. I think there are ways to move property without slashing prices, but it all depends on the starting point. Pricing is subjective to begin with, so a $100,000 discount may be a real discount or it may be nothing more than marketing propaganda. Either way, if sellers think their only hope at moving property is slashing prices, they're not exercising creative thinking. The market right now could use some creativity. I appreciation your response!

09/17/2007 04:27 PM

by Jason Romrell (Business and Success Coach)

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