CEO of homebuilder Hovnanian says market could withstand a ‘little’ bump in foreclosures

Hovnanian CEO: Glut of unsold homes easing

LOS ANGELES — The CEO of Hovnanian Enterprises Inc. said a modest surge in foreclosures this year wouldn’t have a devastating effect on the homebuilder’s sales.

Ara Hovnanian said new construction and the inventory of homes for sale have fallen well below normal levels in many cities. So the addition of more homes on the market shouldn’t hurt builders.

“While we prefer no more supply coming through foreclosures, a little more supply would not completely devastate the markets, from our perspective,” Hovnanian said Wednesday.

Foreclosures soared following the collapse of the housing boom, particularly in California, Arizona, Nevada and Florida. That created a glut in many markets that drove down home prices. As a result, homebuilders have struggled to woo buyers away from sharply discounted bank-owned homes.

Steady sales in many foreclosure-ravaged markets such as Las Vegas and Phoenix, have gradually whittled down the number of homes on the market, however.

In addition, many banks have slowed down the foreclosure process, sometimes opting to modify at-risk mortgage loans. That’s also led to fewer bank-owned properties hitting the market.

The inventory of previously occupied homes on the market dipped slightly in January to about an 8-month supply at the current sales pace. That’s up from a recent low of 6.5 months in November, but below the high of about 11 months in July 2008.

But in many markets, the supply of homes for sale is below the 6 months generally regarded as a normal level.

Hovnanian noted that in Sacramento, Calif., a market hard-hit by foreclosures in recent years, there is about a 2-month supply of homes available now versus more than a year’s worth back in 2007. And in Orlando, Fla., supply is down to around 7 months, down from well over a 2-year supply at the start of 2008, he said.

Markets in Texas, Maryland are “very healthy” in terms of homes for sale, he added.

Still, the last thing Hovnanian wants to see is a tsunami of foreclosures, which some economists have predicted could come if borrowers with option-ARM mortgages default in coming months.

Option ARMS allow borrowers to defer some of their interest payments and add them to the principal. Many of these loans are scheduled to reset, potentially triggering huge monthly payment increases.

“I’m not trying to brush off concerns in the marketplace,” Hovnanian said. “There are risks, and the risks are real.”

The Red Bank, N.J., company reported Tuesday its first quarterly profit since 2006, thanks to a hefty tax gain.

Excluding the $291.3 million tax gain, Hovnanian lost about $55.1 million, or 69 cents a share.

Hovnanian shares added 16 cents, or 4 percent, to $4.13 during afternoon trading Wednesday.

On the Net:

Hovnanian Enterprises Inc.: www.khov.com