New home builder K. Hovnanian’s MEMO TO EMPLOYESS ANNOUNCING LAYOFFS is posted on a real estate bubble blog.

It’s no surprise that builders are cutting employment. Fortunately for the employees and the economy, the U.S. has the lowest unemployment in years right now.

It’s also nice to get a glimpse into how Hovnanian sees the market.

At this point, we are preparing for a long period of slower sales, at least through 2007 and perhaps beyond.

That’s realistic.

In the area of land acquisition we have been re-evaluating our current land positions and the contracts for new land in the light of these new conditions. Many of those contracts no longer make good financial sense when you factor in lower prices and a slower sales pace. In cases where we have been unable to renegotiate these contracts with more favorable terms, we are canceling them, at times forfeiting our deposit monies.

Other builders have announced the same thing. That can’t be good for land prices.

We have been successful in many of our Business Units in finding significant cost reductions through cooperation with our business partners. We continue to work on ways to reduce costs.

I would hate to be one of their business partners right now. Hovnanian is in pain and it will spread.

We have also had to make adjustments to our pricing in order to make sales, either through added features, free options, waived premiums or outright base price reductions. In a market where our competitors are making dramatic pricing concessions, we must make similar adjustments in order to remain competitive.

Thus a disadvantage of investing in new home communities.

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