Ara Hovnanian said it twice, homebuilders really need scale

Business terms, like talented team members, may be underpaid overachievers. One of homebuilding’s buzzing pop-chart terms these days qualifies. Scale.It sounds abstract, rhetorical, almost like a B.S. catch-all for net-margin-positive competence.Except that it’s none of those, particularly in light of what’s likely to be another 24 to 36 months of unrelieved headwinds for homebuilders. In fact, scale, as in deep, local scale, is becoming a competitive non-negotiable, a business throughput virtuous cycle.Ara Hovnanian didn’t need an analyst to tell him what Hovnanian Enterprises’ fiscal third quarter made clear.“We know we need scale,” the company’s chairman and CEO told analysts Thursday. Then, as if to make sure nobody missed the point, he said it again. “We really need scale.” Call it candor or not, Mr. Hovnanian’s unaided assertion carries freight beyond a disappointing quarter for the Hovnanian team. It speaks to a meaningful, pitched, almost Darwinian wedge pounding out a new shape across U.S. homebuilding as elevated mortgage rates, affordability constraints, costly incentives and unpredictable consumer confidence grind away at operating margins. Every operator and every ente...