Hovnanian's Talk Rings Hollow

There might be a recession looming, but don't believe it just because Hovnanian Enterprises(HOV) says so. The homebuilder's senior executives have been completely wrong over the past year about where the country -- and the company -- is heading.

Last week, CEO Ara Hovnanian told CNBC: "Clearly, the risk of the economy overall going into a recession is heightened right now."

The fact that there might be a recession coming isn't surprising, given how bad the housing market has become. What is surprising is that the comments are coming from Ara Hovnanian, one of the most vocal housing bulls of recent years.

The timing of Hovnanian's bearish turn is perfect. It's suffering from high debt burdens and cash flow problems, making it a good time to talk up a recession. When your own company is in trouble, why not say the entire country is having economic problems?

Dial back to last December, when Hovnanian missed estimates and reported a $115 million loss for the fiscal fourth quarter. Despite the bleak quarter, the builder forecast a nice profit for 2007 and assumed there would be zero additional impairments and land charges -- an absurdly optimistic proposition.

Larry Sorsby, the company's chief financial officer, told investors on the earnings call at the time, "We think it is behind us as long as the market doesn't worsen," referring to the writedowns.