Company: HOVVB
Filing Date: 2025-12-22
Form Type: 10-K
Source: 0001753926-25-001938
Chunk: 22

Company: HOVNANIAN ENTERPRISES INC
Filing Date: 2025-12-22
Form: 10-K
Item: Item 1A
Chunk 22
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 to pass to our current or future customers. Sustained increases in construction costs may, over time, erode our margins, and impact our total contract or delivery volumes.

Interest rates increased substantially in fiscal years 2022 and 2023 and remained volatile in 2024 leading to uncertainty in the market about the direction rates will go in the future. Because the large majority of our customers require mortgage financing, increases in interest rates or the decreased availability of mortgage financing could considerably impair the affordability of our homes, lower demand for our products, limit our marketing effectiveness and limit our ability to fully realize our backlog.

The large majority of our customers finance their acquisitions through lenders providing mortgage financing. Mortgage rates, up until late 2022, had been historically low, which made the homes we sell more affordable. Despite the Federal Reserve lowering interest rates in 2024 and 2025, mortgage rates have significantly increased since the beginning of fiscal year 2022 as a result of the Federal Reserve raising interest rates in an effort to curtail inflation during fiscal years 2022 and 2023. When interest rates increase, the cost to own a home increases, which reduces the number of potential homebuyers who can obtain mortgage financing and can result in a decline in the demand for our homes. We cannot predict whether interest rates will rise further, or the paces of any increases, but additional increases would likely have a considerable impact on housing demand.

Increases in interest rates (or the perception that interest rates will rise, including as a result of the actual or anticipated actions of the government), have, and could in the future, increase the costs to obtain mortgages, decrease the availability of mortgage financing, and lower demand for new homes because of the increased monthly mortgage costs and cash required to close on mortgages to potential home buyers. Even if potential customers do not need financing, changes in interest rates and mortgage availability could make it harder for them to sell their existing homes to potential buyers who need financing. This could prevent or limit our ability to attract new customers as well as our ability to fully realize our backlog because our sales contracts generally include a financing contingency. Financing contingencies permit the customer to cancel his/her obligation in the event mortgage financing at prevailing interest rates, including financing arranged or provided by us, is unobtainable within the period specified in the contract. This contingency period is typically four to eight weeks following the date of execution of the sales contract. We believe that the availability of mortgage financing, including through federal government agencies or government-sponsored enterprises (