Update on Hovnanian's (HOV) Sale of the Century

So Saturday I discussed the $100K off sale by Hovnanian (HOV)

Today we read rave reviews about the rampant success of the ploy....

• NEWARK, N.J. (AP) -- Struggling builder Hovnanian Enterprises Inc. on Monday claimed "huge success" with its weekend sales blitz, which included six-figure discounts on homes being built or completed in 19 states.
• The preliminary results from the "Deal of the Century" event exceeded expectations, said Ara K. Hovnanian, president and CEO.
• The sales promotion dropped prices by up to 25 percent, with the largest discounts typically offered on the most expensive homes.
• The company said it made more than 2,100 sales, which comprised about 1,700 contracts and 400 deposits. It said agents took deposits when they did not have time to finish the paperwork for contracts before the deadline of 9 p.m. Sunday.
• The figures approached Hovnanian's results for the most recent quarter. It reported 2,539 contracts for the three months ended July 31, down 24.2 percent from the same period a year ago. Hovnanian sold 3,179 completed homes in the quarter, down 31.2 percent from a year earlier.

*********
So what are the implications of this move for the housing market as a whole?

1. It stokes short term demand for homes - helping the homebuilders with cash flow and making "numbers"
2. It peeves recent buyers in the same markets/neighborhoods - but who cares, I mean their contracts are in hand and money banked. This won't hurt builders until the "next time around" these people want a home.
   
3. It drives down market values in the entire area. This peeves off current homeowners looking to sell; BUT it accelerates the pace that the market will reach reality as stubborn sellers will see what is happening around them and in an illiquid asset such as housing.
4. It trains consumers to behave badly. Remember the domestic automakers after 9/11? This was when the world of rebates truly surged en masse to stoke demand - and for many years thereafter the consumer was waiting for quarter end and year end rebate surges. Will this now happen in the housing market? Notwithstanding the domestic auto companies own issues - these rebates further devalued their products. And only recently have the auto companies taken the medicine and cut back on rebates, but this comes as they have taken countless body blows and are emerging as much smaller companies with a lot of lost market share. With that said, there are many issues surrounding the domestic auto companies and all this cannot be blamed on rebates. But this was the point, when the downturn in auto companies swiftly accelerated.
5. Who is going to stick a toe in the market to buy in between the 'rebate' weekends. Why bother?
6. Are homebuilders just pulling in more demand from the future? The auto makers did this game and it worked for a few years until they had squeezed that rock for every ounce of blood they could.
   

So the takeaway seems to be that we will more swiftly reach an equilibrium in the overall 'market' for homes, which will be good for eventual buyers finding a bottom. But it will accelerate the pain for those current homeowners who wish to sell, who were hoping to sell homes for perhaps 8% below market this month/next month, and immediately are faced with a 15% reduction across the street on a brand new unit - so their devaluation is going to happen even more quickly than originally anticipated. Why would buyers in the market buy older homes for more than brand new homes of similar size/condition/lot size, etc.

As an aside I'd love to know how many of these contracts/deposits had pre-qualified borrowers - and how many were buyers just off the street. Wanting a home and being qualified for a loan in this lending environment are two totally different things. Let's keep an eye out on that data if Hovnanian decides to let us in on the secret.