Homebuilders continued to test pricing in a rising rate environment and some builders got too aggressive as Hovnanian Enterprises Inc. discovered.
"Our emphasis on raising home prices combined with concerns over rising mortgage rates and weakened consumer confidence dampened our home sales during July and August of 2013,” said Ara Hovnanian, the chairman, president and chief executive of company.
The Red Bank, N.J.-based builder raised prices at its Roseville, Calif., community three times in February and March totaling $50,000.
Sales slowed initially but “picked up again on their own in a few weeks as people adjusted to the prices,” an HEI executive told investors and analysts during a third-quarter earnings conference call.
In May through June, Hovnanian raised prices four more times by $25,000. The builder sold only one home over the next seven-week period, compared to one home a week in the prior seven weeks.
“Clearly we got a little over-exuberant,” the executive said.
They lowered the price by $10,000 and it resulted in a sale the next week.
Overall, Hovnanian has raised prices in the Roseville community by $131,000 or 38% since August 2012.
In its Woodbridge, Va., community, the builder raised prices five times over nine months totaling $47,000 or 12%.
“The last price increase in June finally slowed sales so we made a minor $5,000 downward adjustment and we saw sales resume to more a normalized pace,” an executive said.
Despite the slowdown in sales, the executive said they will continue to test pricing.
“We are confident that any hesitancy consumers have seen or felt or acted with the higher rates will be a temporary bump in the road to housing recovery,” Hovnanian said.