Hovnanian Enterprises (NYSE:HOV) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Hovnanian Enterprises reported total revenues of $706 million for the third quarter, slightly above the midpoint of guidance, with a gross margin of 14.6%.
The company is transitioning from older land inventory to new communities better aligned with current market conditions, contributing to improved gross margin forecasts for the fourth quarter.
Third quarter adjusted pretax income was a loss of $2 million, below the guidance range, primarily due to delays in joint venture deliveries.
Hovnanian continues to experience strong website traffic, indicating long-term interest, but buyers remain cautious due to macroeconomic factors.
The company maintains a strategy of using option lots to limit capital investment while increasing community count, expecting sequential growth in the fourth quarter.
Guidance for the fourth quarter includes revenues between $800 million and $900 million, with an adjusted gross margin of 15% to 16.5%.
Hovnanian is focusing on higher-value segments, such as move-up buyers and active adult communities, to enhance margins and returns.
Management remains committed to disciplined capital allocation and maintaining a strong liquidity position to capitalize on future opportunities.
Full Transcript
Lisa, Operator
Good morning and thank you for joining us today for the Hovnanian Enterprises Fiscal 2026 Third Quarter Earnings Conference call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast and all participants are currently in a listen-only mode. Management will make some opening remarks about the third quarter results and then open the lines for questions.
The company will be, excuse me, webcasting a slide presentation along with the opening comments from management. The slides are available on the Investors page of the company’s website and at www.khov.com. Those listeners who would like to follow along should now log into the website. I will now turn the call over to Jeff O’Keefe, Vice President, Investor Relations. Jeff, please go ahead.
Jeff O’Keefe, Vice President, Investor Relations
Thank you, Lisa, and thank you all for participating in this morning’s call to review the results for our third quarter. All statements on this conference call that are not historical facts should be considered as forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the company to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
Such forward-looking statements include, but are not limited to, statements related to the company’s goals and expectations with respect to its financial results for future financial periods. Although we believe that our plans, intentions, and expectations reflected in or suggested by such forward-looking statements are reasonable, we can give no assurance that such plans, intentions, or expectations will be achieved. By their nature, forward-looking statements speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks, uncertainties, and assumptions that are difficult to predict or quantify.
Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties, and other factors are described in detail in the sections entitled Risk Factors and Management’s Discussion and Analysis, particularly the portion of MD&A entitled Safe Harbor Statement, in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025, and subsequent filings with the Securities and Exchange Commission.
Except as otherwise required by applicable securities laws, we undertake no obligation to update, publicly update, or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reason. Joining me today are Ara Hovnanian, Chairman and CEO; Brad O’Connor, CFO; David Mitreson, Vice President, Corporate Controller; and Paul Eberle, Vice President, Finance and Treasurer. I’ll now turn the call over to Ara.
Ara Hovnanian, Chairman, President and CEO
Thanks, Jeff. I’ll begin with a review of our third quarter results and discuss how we continue to execute our strategy in a housing market that remains challenging. Brad will then review the quarter in more detail and discuss our guidance for next quarter before we open the call for questions. To begin, it’s clear that the macro environment has been challenging. World events, as well as high mortgage rates, high gas prices, inflation, and other factors have caused potential homebuyers to hesitate.
While website traffic has remained strong, indicating long-term homebuying interest, buyers remain slow to make the final decision to move forward. If you turn to Slide 5, you can see that total revenues were $706 million, slightly above the midpoint of our guidance range that we provided for the quarter. Honestly, we were hoping for a little more, but with almost a third of our deliveries for the quarter coming from new sales in the quarter, it’s harder to predict.
Gross margin was 14.6%, also above the midpoint of our guidance range. We believe gross margin troughed in the first quarter, and we’ve now seen improvement in the second and third quarters, and we’re guiding to continued and more significant improvement in the fourth quarter. We’ll describe that more in a moment. Our SG&A ratio was 12.3%, which was better than our guidance range. Income from unconsolidated joint ventures was $3 million, which was within the guidance range but below the midpoint and certainly below our expectations.
Adjusted EBITDA was $32 million, also within our guidance range. And finally, adjusted pretax was a loss of $2 million, slightly below the bottom of our guidance range of zero. The shortfall was primarily driven by income from unconsolidated joint ventures, which was the one area that came in below the midpoint of our guidance. This was substantially driven by delays at our newest joint venture deliveries. If JV income had been at the midpoint, or if new QMI sales were just a little bit stronger, we certainly would have been within the guidance range.
We’re disappointed that our adjusted pretax income came in slightly below the guidance. Since the fourth quarter of 2020, we have consistently provided guidance one quarter in advance, and this was the first time in 23 quarters that adjusted pretax income finished below the guidance range. As we discussed for the past several quarters, our strategy has been to maintain sales pace while carefully working through older land inventory that was acquired before today’s higher-incentive environment became the norm.
At the same time, we’re bringing on newer communities where the underwriting economics already reflect today’s market conditions. Despite the weaker-than-anticipated level of profitability for the third quarter, the transition from old inventory to new continues to make progress. Now turning to Slide 6. Compared with last year’s third quarter, our results continue to reflect the reality of a housing market operating under substantially higher mortgage rates, elevated incentives, and concern about global instability, which has affected our top line as well.
Although the metrics on the slide are below last year’s level, we are continuing to manage through the cycle to position ourselves for long-term returns. Our inventory position is healthier today, our land portfolio is significantly better aligned with the market conditions, and our balance sheet remains substantially stronger than it was a few years ago. Slide 7 shows our quarterly contracts declined slightly by 57 homes to 1,359 homes. The decline reflected the impact of political and financial volatility during the quarter, which contributed to more cautious buyer behavior.
As I mentioned just a moment ago, we continue to believe that there is meaningful underlying demand for housing. Consumers are visiting communities and shopping for new homes. The challenge remains converting that interest into contracts in an environment where buyers continue to react to the latest news they read. Even with that modest decline, we believe our sales pace remained resilient relative to the broader market backdrop. Looking at our monthly contracts on Slide 8, the choppiness we experienced early in the year continued throughout the third quarter.
Since hostilities began with Iran in March, periods of heightened geopolitical uncertainty, the presence or absence of a ceasefire, and concerns about access to two different straits have generally appeared to move in the same direction as our sales pace. As of yesterday, interestingly, month-to-date contracts in August were up 3% versus last year. Consumers are still researching communities, as evidenced by the strong website traffic. In July of 26, website visits were higher than in all but one year since 2019, and the last two weeks were higher than any year since 2019.
However, the homebuyer decision-making process remains uneven, as we’ve been discussing, with consumers highly sensitive to changes in affordability and overall news and confidence. When affordability improves or confidence strengthens, we believe this greater website traffic should lead to increased foot traffic. In turn, a larger portion of that foot traffic should convert to sales. But recent monthly sales clearly show buyers are remaining cautious at the moment.
Turning to Slide 9, our sales pace remained healthy by historical standards despite the difficult market backdrop. With 9.4 contracts per community, we’re just above the historical averages when you look at contracts per community. On a monthly basis, as we do on Slide 10, you can see that same uneven pattern we’ve been discussing. We started the quarter with a stronger year-over-year comparison in May, but the pace softened as the quarter progressed, with June roughly in line with last year and July below last year’s level.
So far, as we mentioned, August is just a little stronger than last year. This pattern of ups and downs is consistent with what we said earlier. Our strategy remains relatively straightforward: maintain a healthy sales pace, keep moving inventory, burn through older-vintage land, and make certain standing inventory does not build unnecessarily. We believe that approach supports stronger long-term returns than attempting to maximize near-term pricing at the expense of absorption.
One area we continue to monitor is incentive activity. As you can see on Slide 11, incentives remain elevated relative to historic levels. However, after increasing for several years, incentive levels have decreased from the first quarter to the second quarter to the third quarter. And this happened even though mortgage rates increased during the quarter. Importantly, today’s incentive environment is already incorporated into our new underwriting assumptions for the more recent land acquisitions.
That distinction definitely matters. When we’re delivering homes from land purchased several years ago, the higher incentives greatly compress margins. When we’re delivering homes from communities that were acquired or underwritten with high incentives already assumed, those communities should generate better gross margins. That transition remains one of the most important drivers of our future margin recovery. As incentives have come down over the past couple of quarters, our gross margin has improved.
On Slide 12, you can see that gross margins have increased sequentially since reaching a low point in the first quarter. This is now two quarters of sequential improvement, and at the midpoint of our guidance, we expect a larger sequential increase in the fourth quarter to 15.8%. Another indicator that we continue to monitor closely is the percentage of communities where we’re able to raise prices or reduce incentives. As you can see on Slide 13, we were able to do so in 31% of our communities during the third quarter.
We view this as a balanced signal. It shows that affordability and confidence continue to limit broad-based pricing power, but it also demonstrates that a meaningful portion of our communities can still support improved net pricing where inventory is well controlled and the local competitive environment is more balanced. If you turn to Slide 14, one of our objectives over the last 18 months has been to bring QMI inventory to a more balanced level, and we’re making substantial progress.
Although QMI inventory increased slightly to 6.7 QMIs per community, we’re very comfortable with our position today, and we believe our inventory is well aligned with current demand. On Slide 15, you can see total QMI inventory has fallen meaningfully by 29% from the levels we experienced in early 25. This improvement gives us greater flexibility, allows us to be more selective with incentives, better manage pricing, and increase the percentage of sales that are generated from to-be-built homes, which generally carry stronger margins.
Our teams have done an outstanding job matching starts to demand and maintaining inventory across the portfolio. In the third quarter of 2016, 33% of the homes we delivered were both sold and closed within the same quarter, which makes it difficult to predict next quarter’s results. As we said, overall our backlog conversion ratio was 74%, and it’s still much higher than our historical average of 57% since 3Q98. So to summarize, while the housing market remains challenging and affordability continues to weigh on customers, we delivered results that were generally within guidance and maintained sales momentum during the quarter.
We’re making meaningful progress as newer communities underwritten for today’s market become a larger part of our business. With that, I’ll turn the call over to Brad to discuss our liquidity, land position, and outlook in more detail.
Brad O’Connor (Chief Financial Officer)
Thank you, Ara. Turning to Slide 16, we finished the third quarter with liquidity well above our target range. The strength of our liquidity continues to provide significant flexibility as we evaluate new land opportunities, support community count growth, and maintain a disciplined approach to capital allocation. While we’d certainly like to deploy additional capital into attractive opportunities, we remain committed to maintaining our underwriting discipline and will not pursue growth at returns that fail to meet our standards.
Turning to Slide 17, our debt maturity profile remains well laddered with no significant near-term maturities. This provides us with continued flexibility as we manage through the current market environment. The refinancing transaction we completed last fall was an important step in extending our maturity runway and further strengthening the balance sheet. On Slide 18, we show that over the last several years we’ve meaningfully reduced debt while simultaneously increasing book equity.
As a result, our net debt-to-cap ratio has improved dramatically from where it stood just a few years ago. Today, we remain firmly focused on further strengthening the balance sheet while maintaining the flexibility necessary to capitalize on future growth opportunities. Turning to Slide 19, we ended the quarter with 147 communities, relatively unchanged from 146 communities at the same time last year. Although our total community count was essentially flat year over year, there was meaningful movement within the portfolio.
We opened 62 new communities and closed 61 others, underscoring the continued refresh of our community base. We continue to expect our community count to increase sequentially in the fourth quarter as newer communities come online. While we have talked about growing community count in the past, it has not grown as quickly as we had anticipated, due in part to our decision to walk away from certain land contracts during due diligence when they did not meet our underwriting standards.
At the same time, we remain committed to our land-light approach. As you can see on Slide 20, our owned lot position continues to decrease, while our option lot position grew sequentially for the first time in six quarters as we replaced delivered lots with higher-margin new lot positions. Turning to Slide 21, option lots represent the vast majority of our controlled lot portfolio, allowing us to maintain flexibility while limiting invested capital.
Here you can see that the percentage of option lots has grown from 46% in the third quarter of 2015 to 87% in the third quarter of 2026, which is our highest percentage of option lots ever. Slide 22 shows the age of our lot position, both owned and optioned, broken down by the year each lot was controlled. The number in each bar represents the total lots controlled in that year, and the number below each bar indicates the percentage of incentives used on homes delivered during that year.
Our controlled lot position remains substantial, but more importantly, the quality of that lot position continues to improve. At the end of the third quarter, 82% of our lots were controlled in fiscal year 2023 or later, after incentives had moved substantially above historical levels. That is a significant shift in the portfolio. It means the vast majority of our current lot position was underwritten with today’s incentive environment already reflected in the economics rather than based on assumptions from a time when incentives were much lower.
An increasing percentage of our deliveries are expected to come from lots acquired under today’s market assumptions. As those communities become a larger part of our mix, we believe they will provide stronger margins and stronger returns than many of the communities they are replacing. The land market continues to present select opportunities that meet our underwriting hurdles, and we remain patient and disciplined in our land evaluation. Given the continued variability in the sales environment and the timing effects associated with QMI deliveries, we are providing financial guidance for the next quarter only.
Our outlook assumes market conditions remain broadly stable with no major increases in mortgage rates, tariffs, inflation, cancellation rates, or construction cycle times. As a greater portion of our deliveries come from QMIs, quarterly results can be more sensitive to closing timing and mix. Our forecast includes ongoing use of mortgage-rate buy-downs and similar incentives, and it does not include any changes to SG&A from phantom stock expense tied to stock price movements from the $123.90 closing price at the end of the third quarter of fiscal ’26.
On Slide 23 we show our guidance for the fourth quarter. We expect continued progress as more homes are delivered from our newer communities. We expect total revenues between $800 million and $900 million. Adjusted gross margin is expected to be in the range of 15% to 16.5%. We expect SG&A as a percentage of total revenues to be between 10.5% and 11.5%, which remains above our long-term objective. We expect income from joint ventures to be between $10 million and $20 million, and our guidance for adjusted EBITDA is between $50 million and $65 million.
Our expectation for adjusted pre-tax income for the fourth quarter is between $15 million and $30 million. We remain focused on execution and believe our positioning today supports continued improvement moving forward. I will now turn it back over to Ara for some closing remarks.
Ara Hovnanian, Chairman, President and CEO
Thanks, Brad. When we look at this housing cycle, we’re focused less on the results of a single quarter and more on how we’re positioned for the years ahead. Turning to Slide 24, these five priorities on the slide, which I’ll describe in more detail in a moment, reflect the strategic framework that we’re using to guide our operating decisions. Slide 25, sales pace leadership. Here we show that we’re maintaining one of the stronger sales paces in the industry.
It’s not happening by accident. We’re keeping communities actively selling, aligning prices, incentives and production with local demand, and staying focused on converting consistent sales velocity in a market where affordability remains challenging and buyer confidence can shift quickly. Sustaining this level of absorption is an important part of our strategy. We want to burn through the older land, as we’ve said many times, and perform for our land sellers as well.
You can see on this slide how our contracts per community would stack up against our peers who report on a June quarterly basis. Our contracts per community of 10.2 ranks us third out of these peers. On Slide 26 we show that our sales pace increased year over year while many builders were flat or down, again ranking us third if we had a June quarter end. In our view, that demonstrates we’re getting more than our fair share of the market even in a difficult selling environment.
By staying disciplined on pricing, incentives and production, we’re keeping buyers engaged and converting demand into contracts at a rate that compares favorably with the industry even as it’s going through a difficult time. On Slide 27 we show another important element of our strategy: capital efficiency. At 87% option lots, we control more of our lots through options than the majority of our peers. That allows us to secure future community growth while limiting the amount of capital tied up in land.
By using options with sellers and strategic land partners, we can minimize the investment in long-duration communities and maintain the flexibility to align our land pipeline with actual market demand. On Slide 28 we show that we have the second-highest inventory turn rate in the industry, and this is a relative position that we maintain consistently over time. This reflects disciplined execution across the business and keeping our build cycles efficient, converting starts into deliveries quickly, and limiting standing inventory.
Faster inventory turns help preserve our pricing power, reduce carrying costs and allow us to recycle capital more efficiently into new communities and other growth opportunities. On Slide 29 you can see how our higher percentage of option lots combined with higher inventory turns translates into one of the highest EBIT ROI profiles among our small- to mid-sized peers. This is the result of evaluating decisions through the lens of inventory efficiency and return on capital, allocating capital to communities and opportunities where we see the best returns, balancing growth, margins and cash flows to maximize long-term value creation.
On Slide 30 we highlight the continued shift in our portfolio toward higher price points and higher-value buyer segments. As we make this shift, we’re reducing our exposure to the most competitive entry-level price points and placing a greater emphasis on move-up buyers and active adult housing. To support that strategy, we recently hired Deborah Blake, a veteran active adult lifestyle expert, to bring additional focus to our Four Seasons brand and communities where we can differentiate through elevated design, quality and included features.
We believe this portfolio shift can help broaden our appeal to buyers who have greater financial flexibility while supporting stronger margins and returns over time. Taken together, these slides show how a strategy focused on generating sales pace, capital efficiencies and returns can be better for the long term than just simply growing for growth’s sake or chasing margin. We’re maintaining one of the strongest sales paces in the industry, capturing more than our fair share of demand, and using our land-light model and faster inventory turns to drive one of the strongest EBIT ROI return profiles among our small and midsize peers.
As we shift more of our portfolio to higher-value buyer segments, including move-up and active adult communities, we believe we’re positioning the company for stronger margins, better capital returns and long-term shareholder value creation. The housing market undoubtedly remains challenging and we don’t pretend otherwise, but we like where we’re positioned. We have great people, strong liquidity, a disciplined land strategy and a clear focus on returns.
We believe those advantages position us well to create value for our shareholders over the longer term. With that, operator, we’ll be glad to open it up for questions.
Lisa, Operator
Thank you. If you would like to ask a question, please press star 11 on your telephone. You will hear an automated message advising your hand is raised. If you would like to remove yourself from the queue, press star 11 again. We also ask that you wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question is coming from the line of Natalie Kolaskary Zelman. Please go ahead.
Natalie Kolaskary Zelman
Hey, good morning. Thank you for taking my question. So I see here on your presentation that construction cost per square foot ticked higher this quarter. So I know it’s a fractional increase, but could you talk a little bit about what drove that? And if it’s fuel- or lumber-related, what sort of success have you had in negotiating this cost lower for the coming quarters?
Brad O’Connor (Chief Financial Officer)
The primary… Yeah, I mean, it’s not a very large increase. There’s been minor increases in a few areas, and we are seeing lumber start to increase. As you point out, we do continue to look for ways and push back on both material and labor supply in all of our communities, looking for opportunities to drive those costs down. As you’ll see on that same slide, we brought costs down quite a bit since the beginning of 2025, a trough in the last quarter, and now it’s just gone back up slightly.
So it isn’t a significant change, and we do continue to look for ways to bring down our costs.
UNKNOWN Analyst
Okay, thank you. And we’ve been hearing more chatter about ICE raids over the past month. So have you experienced any disruptions to your operations in any of the markets because of this?
Ara Hovnanian, Chairman, President and CEO
I have not heard of any ICE raids lately. It’s been a while actually since I’ve heard about that in any of our communities of note. I think the last one I heard about was probably three or four months ago.
Brad O’Connor (Chief Financial Officer)
Yes, it’s been relatively quiet. I mean, the overwhelming majority of our trades obviously use all legal workers, so we don’t expect problems. And frankly, with demand a little on the low side, labor has not been an issue right now.
UNKNOWN Analyst
Thank you.
Lisa, Operator
Thank you. One moment for the next question. Our next question is coming from the line of Alex Barron of Housing Research Center. Please go ahead.
Alex Barron, Analyst at Housing Research Center
Yes, good morning. I guess. Just wanted to see if you guys could discuss a bit, you know, your outlook on what incentives you believe are likely to do at the moment or how your strategy has been shifting. And also can you discuss a bit more bringing the Saudi Arabia stuff on balance sheet?
Ara Hovnanian, Chairman, President and CEO
So I’ll tackle it and Brad, you can fill in a little bit more. You know, as we mentioned, even though mortgage rates increased during this quarter more than—I mean we weren’t anticipating any increase—it did increase quite a bit but incentives managed to go down. Obviously, you know, today mortgage rates crept up again. So you know, it’s difficult to try to project what’s going to happen with incentives. Our crystal ball on what’s going to happen with long-term rates is just not super clear.
But what is clear is that we’re getting a greater percentage of our deliveries from newer properties where we’ve already anticipated higher incentives during underwriting that will help even if they creep up just a little bit. I forgot the second part of your question.
Brad O’Connor (Chief Financial Officer)
The second question was Kay as a pop global so I don’t know exactly, Alex, what you’re asking, but in the first quarter we consolidated what was a joint venture and you can see if you look at the balance sheet the change from year end to July. A lot of the changes in inventory, customer deposits, receivables, deposits and notes are a result of that consolidation. We talk about that some in the Q, so you can certainly take a look there. Even last Q we talked about it.
We really haven’t seen any—that business is kind of in between communities at the moment. We’re not really seeing—we don’t really have any deliveries coming in this year so far, but we are expecting some deliveries to begin to happen in the fourth quarter and then into 2027. So we’ll start to talk about it a little bit more when that starts to happen. At the moment it’s really a non-event in our income statement because there’s really no delivery activity yet.
Ara Hovnanian, Chairman, President and CEO
And I think the same is true for the balance sheet. We have very little invested there. It’s just not a—so far it hasn’t been a capital-intensive market, especially as most of our buyers are doing stage payments which really reduces the amount of capital we need to invest there.
Alex Barron, Analyst at Housing Research Center
So how should we think about the backlog and when that’s likely to start to get delivered or what the first year deliveries is likely to look like?
Brad O’Connor (Chief Financial Officer)
Well, I think as I mentioned you’ll start to see some deliveries in the fourth quarter and then once that starts to happen, as we’re giving next year’s projections, we’ll probably start to be able to give you more guidance about that.
Alex Barron, Analyst at Housing Research Center
Okay, thank you.
Ara Hovnanian, Chairman, President and CEO
Yeah. Overall, I wouldn’t be overly focused on Saudi. It’s a minor investment and minor activity, relatively speaking. We’re hoping over the long term to make it a greater and more meaningful part of our business. But at the moment we’re really keeping it on the lower side.
Lisa, Operator
As a reminder, if you would like to ask a question, please press star 11 on your telephone. One moment for the next question. Our next question is coming from the line of J. McAnice of Citizens Bank. Please go ahead.
J. McAnice, Analyst at Citizens Bank
Hey, good morning everyone. When I look at the total revenue guide of 800 to 900 million, is there any land sales contemplated in that number or is that all increase in housing sales?
Brad O’Connor (Chief Financial Officer)
No, land sales are assumed in that. In that number.
J. McAnice, Analyst at Citizens Bank
Okay, could you talk about what you guys are expecting for an ASP this quarter?
Brad O’Connor (Chief Financial Officer)
I would say if you looked at our most recent quarter actuals, it’s. It shouldn’t be that significantly different than that. I think you’re going to just gradually see our ASP go up quarter over quarter as we’re bringing in new communities and moving away from the first-time Aspire projects we talked about. But it’s going to take time for that to happen. So you’ll just see very gradual increase in ASP quarter to quarter.
J. McAnice, Analyst at Citizens Bank
That was actually going to be my next question, Brad, is what are you guys thinking for next year? So just mix of more move-up buyers is going to bring that ASP you think?
Brad O’Connor (Chief Financial Officer)
Yes, just—it’s going to take time, but yes, that’s right. You’re going to see that over the coming years. I think our ASP will continue to move up as we move away from Aspire.
J. McAnice, Analyst at Citizens Bank
Yeah, gotcha. And then the next question on community count, any idea as to when that’s going to inflect and start to move higher? This is the third quarter in a row where community count’s been down sequentially.
Ara Hovnanian, Chairman, President and CEO
Yeah, we did mention that the fourth quarter, we do expect it to be up and then we do expect growth in 2027 as I mentioned. Unfortunately we’ve been saying that and it hasn’t been coming to fruition. And it’s because we’ve had a number of communities that we’ve walked away from at various stages, primarily during due diligence or before the land is purchased. But that’s hurt our ability to get growth. As we talked about, we have a lot of new communities that we’ve done—62 in the last 12 months—but not getting growth yet.
But we do anticipate, barring any significant changes in the market that force us to consider walking away from additional deals, we expect growth to happen in the fourth quarter and then into 2027.
J. McAnice, Analyst at Citizens Bank
Gotcha. And then really good news on the gross margin front, I guess. How sustainable is that from going from 4Q to 1Q? I think you’re going to lose some volume sequentially. But do you think, without giving guidance, do you think there’s a possibility you could be close to that gross margin number? Or if not, what has been the historical degradation from 4Q to 1Q just given the lack of volume or the lower volume in 1Q versus 4Q?
Brad O’Connor (Chief Financial Officer)
I think you’re basically stating it correctly. We should continue to see a trend of improvement from where we are today. There would likely be maybe a little degradation from the fourth quarter to the first as we typically see from the volume, as you point out, but that’s probably typically 30 to 50 basis points, something in that range. So I think you’d still see improvement from the third quarter to the first quarter if the market doesn’t change, if that helps answer your question.
J. McAnice, Analyst at Citizens Bank
Yeah, that’s great. Thank you. And then the last one I had, with all the M and A this year and I know a lot of these deals are recently closed or soon to be closed, I guess. Are you seeing any opportunities on the land side either from like, you know, full packages or one-off communities? Anything that’s coming to market that might help you guys grow the community count a little faster, if that’s something we’re looking at.
Brad O’Connor (Chief Financial Officer)
Oh, go ahead, Ara.
Ara Hovnanian, Chairman, President and CEO
I was just going to say we obviously are seeing land opportunities from a variety of sources this quarter. As we mentioned during the call, we had positive position in our lots controls. We optioned and controlled more lots during the quarter than we delivered homes. Some of it, you know, can be coming from the M and A activity, some of it is coming from other of our peers that are walking from communities just like we’re doing that don’t make economic sense for them.
And then sometimes that same land seller can keep the previous deposit and reduce prices to make it enticing to resell it. So we’re definitely seeing that, including some that are finished lots, which is particularly helpful. So we’re optimistic and we’re actually really gearing up on our land acquisition teams across the country. We know we need scale. We really need scale and we’re trying to make a concerted effort, if not through M and A opportunities, then by being more aggressive in searching for land that meets our underwriting criteria.
J. McAnice, Analyst at Citizens Bank
Okay, that’s great. Thank you, guys. I appreciate it.
Ara Hovnanian, Chairman, President and CEO
Thank you.
Lisa, Operator
Thank you. And that concludes the Q and A session. I would like to turn the call back over to Ara for closing remarks. Please go ahead.
Ara Hovnanian, Chairman, President and CEO
Great.
Thank you very much. You know, considering the environment, we’re not overly surprised by the results, but we very much look forward to producing better results and reporting better results next quarter and certainly next year as well. Thanks so much.
Lisa, Operator
Thank you for participating in today’s program. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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