Hovnanian FY 2Q17 Earnings Call Notes

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Ara Hovnanian – Chairman, President and Chief Executive Officer

Construction costs going up but labor costs moderated. Materials prices going up especially lumber

“Construction costs are the area that continued to negatively impact our gross margin. On the positive side and totally the rate at which labor prices have increased has abated somewhat in the last 6 months in many markets. The supply of labor definitely remains tight and there is still some cost pressure and not quite as great. However, we are now beginning to feel the impact of rising material costs. The biggest impact is coming from lumber – framing lumber and OSB, which I am sure you have read about and unfortunately happens to be one of the raw materials that has the biggest impact on our costs.”

Lumber prices affected when trade agreement with Canada expired

“you can see the spike in January of ‘17 when the previous trade agreement with Canada expired. This put upward pressure on lumber prices as the potential impact from tariffs was assumed. To put these increases into perspective, over the past year, the average costs for lumber increased roughly $2,000 for a 2,500 square foot home”