HOVNANIAN ENTERPRISES INC, 10-K, 1997-01-17

HOVNANIAN ENTERPRISES INC
10-K, 1997-01-17
OPERATIVE BUILDERS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

( X )ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the twelve months ended OCTOBER 31, 1996

( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

Commission file number: 1-8551

Hovnanian Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-1851059
(State or other jurisdiction of (I.R.S. Employer incorporation
or organization) Identification No.)

10 Highway 35, P.O. Box 500, Red Bank, N.J. 07701
(Address of principal executive offices)

908-747-7800
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange on
Title of Each Class Which Registered
- -------------------- ------------------------
Class A Common Stock, $.01 par value American Stock Exchange
per share

Securities registered pursuant to Section 12(g) of the Act - None

Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ( X )Yes ( ) No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

As of the close of business on January 10, 1997, there were outstanding
15,167,071 shares of the Registrant's Class A Common Stock and 7,869,982 shares
of its Class B Common Stock. The approximate aggregate market value (based upon
the closing price on the American Stock Exchange) of these shares held by non-
affiliates of the Registrant as of January 10, 1997 was $67,888,000. (The value
of a share of Class A Common Stock is used as the value for a share of Class B
Common Stock as there is no established market for Class B Common Stock and it
is convertible into Class A Common Stock on a share-for-share basis.)

Documents Incorporated by Reference:

Part III - Those portions of registrant's definitive proxy statement to be filed
pursuant to Regulation l4A in connection with registrant's annual meeting of
shareholders to be held in April 1997 which are responsive to Items l0, ll, l2
and l3.

HOVNANIAN ENTERPRISES, INC.
FORM 10-K
TABLE OF CONTENTS

Item Page

PART I

1 and 2 Business and Properties...................... 4
3 Legal Proceedings............................ 18
4 Submission of Matters to a Vote of
Security Holders........................... 18
Executive Officers of the Registrant......... 18
PART II

5 Market for the Registrant's Common Equity
and Related Stockholder Matters............ 19

6 Selected Financial Data...................... 20

7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 21

8 Financial Statements and Supplementary
Data....................................... 32
9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................. 32

PART III

10 Directors and Executive Officers of the
Registrant................................. 33

Executive Officers of the Registrant......... 33

11 Executive Compensation....................... 34

12 Security Ownership of Certain Beneficial
Owners and Management...................... 34

13 Certain Relationships and Related
Transactions............................... 34

PART IV

14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K....................... 35

SIGNATURES................................... 38

PART I

ITEMS 1 AND 2 - BUSINESS AND PROPERTIES

The Company primarily designs, constructs and markets multi-family attached
condominium apartments and townhouses and single family detached homes in
planned residential developments in its Northeast Region (comprised primarily of
New Jersey and eastern Pennsylvania), in southeastern Florida, in North
Carolina, in Metro Washington, D. C. (northern Virginia), and in southwestern
California. The Company recently began housing operations in Poland. The
Company markets its homes to first time buyers and to first and second time
move-up buyers and concentrates on the moderately priced segment of the housing
market. The Company has diversified its business, on a limited scale, through
mortgage banking, title insurance activities and the development and ownership
of commercial properties, primarily in New Jersey, and, to a lesser extent, in
Florida.

The Company employed approximately 1,100 full-time associates as of October
31, 1996. The Company was incorporated in New Jersey in 1967 and was
reincorporated in Delaware in 1982.

RESIDENTIAL DEVELOPMENT ACTIVITIES

The Company's residential development activities include evaluating and
purchasing properties, master planning, obtaining governmental approvals and
constructing, marketing and selling homes. A residential development generally
includes a number of residential buildings containing from two to twenty-four
individual homes per building and/or single family detached homes, together with
amenities such as recreational buildings, swimming pools, tennis courts and open
areas. By using standardized designs and materials and by rigorous control of
subcontracting costs, the Company attempts to keep selling prices moderate.

The Company attempts to reduce the effect of certain risks inherent in the
housing industry through the following policies and procedures:

- The Company acquires land for future development principally through the
use of land options which need not be exercised before the completion of
the regulatory approval process. The Company structures these options in
most cases with flexible takedown schedules rather than with an obligation
to takedown the entire parcel upon approval. Additionally, the Company
purchases improved lots in certain markets by acquiring a small number of
improved lots with an option on additional lots. This allows the Company
to minimize the economic costs and risks of carrying a large land
inventory, while maintaining its ability to commence new developments
during favorable market periods.

- In an attempt to reduce its land acquisition costs, the Company monitors
housing industry cycles and seeks to acquire land options near the cyclical
trough of specific geographic housing cycles.

- The Company generally begins construction on a residential multi-family
building only after entering into contracts for the sale of at least 75% of
the homes in that building. Single family detached homes are generally
started after a contract is signed and mortgage approvals obtained. This
limits the build-up of inventory of unsold homes and the costs of
maintaining and carrying that inventory.

- The Company finances all construction, land acquisition and operations
through equity, long term debt, its unsecured revolving credit facility or
cash flow. This eliminates the need of obtaining specific community
construction financing, which is especially important at a time when
obtaining such community financing is difficult.

- Through its presence in multiple geographic markets, the Company's goal
is to reduce the effects that housing industry cycles, seasonality and
local conditions in any one area may have on its business.

The Company concentrates on a segment of the housing market consisting of
moderately priced, multi-family attached condominium apartments and townhouses,
which are marketed primarily to first time buyers, as well as moderately priced
townhouses with garages and single family detached homes, which are marketed
primarily to first and second time move-up buyers. In recent years, the Company
has diversified its product mix to include more detached single family homes and
larger townhouses with garages designed for the move-up buyer and age restricted
communities for active adults. Current base prices for the Company's homes in
contract backlog in the United States at October 31, 1996 (exclusive of upgrades
and options) range from $47,000 to $530,000 in its Northeast Region, from
$104,000 to $348,000 in Florida, from $95,000 to $325,000 in North Carolina,
from $100,000 to $306,000 in Metro Washington, D. C., and from $103,000 to
$337,000 in California. Closings generally occur and are reflected in revenues
from four to twelve months after sales contracts are signed.
Information on homes delivered by market area is set forth below:

Eight
Year Ended Months Year
------------------- Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
--------- -------- -------- --------
(Housing Revenue in Thousands)

Northeast Region(1):
Housing Revenues........$460,931 $492,388 $223,582 $389,577
Homes Delivered......... 2,364 2,707 1,403 2,527
Average Price...........$194,979 $181,894 $159,360 $154,165

North Carolina:
Housing Revenues........$123,347 $115,919 $ 78,465 $ 72,639
Homes Delivered......... 738 718 558 580
Average Price...........$167,137 $161,447 $140,618 $125,239

Florida:
Housing Revenues........$ 99,085 $ 67,272 $ 37,076 $ 48,780
Homes Delivered......... 632 451 265 405
Average Price...........$156,780 $149,162 $139,909 $120,444

Metro Washington D.C.:
Housing Revenues........$ 16,749 $ 36,006 $ 25,236 $ 44,783
Homes Delivered......... 75 186 137 288
Average Price...........$223,320 $193,581 $184,204 $155,497

California:
Housing Revenues........$ 64,570 $ 27,707 $ 736 --
Homes Delivered......... 325 149 4 --
Average Price...........$198,677 $185,953 $184,000 --

Other:
Housing Revenues........ -- $ 1,189 $ 1,227 $ 1,710
Homes Delivered......... -- 33 20 28
Average Price........... -- $ 36,030 $ 61,350 $ 61,071

Combined Total:
Housing Revenues........$764,682 $740,481 $366,322 $557,489
Homes Delivered......... 4,134 4,244 2,387 3,828
Average Price...........$184,974 $174,477 $153,465 $145,634

(1) Excludes suspended operations in New York which are included with
New Hampshire in "Other" below.

The overall increase in housing revenues was primarily the result of
increases in average sales prices in all the Company's markets. The increased
average sales prices are primarily the result of diversifying the Company's
product mix in the Northeast Regiion to include more detached single family
homes and larger townhouses with garages designed for the move-up buyer. In
Florida, average sales prices are increasing as a result of the addition of new,
higher priced single family developments. In North Carolina, average sales
prices increased primarily due to the addition of higher priced communities.
In Metro Washington, D.C. average sales prices increased because there was a
higher percentage of single family detachd homes delivered. The decrease in
the number of homes delivered during the year ended October 31, 1996 is
primarily due to the decreased deliveries in the Northeast Region. This
decrease was due to the Company's attempt to maximize profits through increased
margins not increased volume. In Metro Washington, D.C. deliveries declined
since the Company cut back its operations due to a highly competitive market.

Information on homes delivered by product type is set forth below:

Eight
Year Ended Months Year
------------------- Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
-------- -------- -------- --------
(Housing Revenues in Thousands)

First Time Buyer Product(1)
Housing Revenues............. $ 77,682 $108,052 $ 47,787 $154,518
Homes Delivered.............. 619 878 475 1,310
Percentage of Housing
Revenues.................... 10% 15% 13% 28%

Move-Up Buyer Product(2)
Housing Revenues............. $687,000 $632,429 $318,535 $402,971
Homes Delivered.............. 3,515 3,366 1,912 2,518
Percentage of Housing
Revenues.................... 90% 85% 87% 72%

(1) First time buyer product consists of all of the Company's
multi-family attached home products other than townhouses with
garages.
(2) Move-up buyer product consists of single family detached homes and
townhouses with garages.

The Company's net sales contracts in the United States increased to 4,156
homes or $737,025,000 for the year ended October 31, 1996 from 3,910 homes or
$660,033,000 for the year ended October 31, 1995. Overall on a dollar basis
this increase amounted to 11.7% and was the result of a 6.3% increase in the
number of homes contracted and a 5.1% increase in the average home base sales
prices. On a market area basis, California enjoyed the highest increase of
64.5%, followed by Florida with a 34.1% increase, the Northeast Region with an
11.6% increase and North Carolina with a 3.3% increase. Only Metro Washington
D. C. had a decrease due to the downsizing of the division.

In anticipation of future losses the Company has written down certain
residential inventories to their estimated fair value. During the year ended
October 31, 1996 such inventories were written down $1,608,000 and presented on
the consolidated statement of income as "Inventory impairment loss." The
$2,780,000 impairment loss for the year ended October 31, 1995 represents the
total aggregate impairment loss of $9,634,000 recorded on inventory at October
31, 1995 net of $6,854,000 of reserves placed on inventories at October 31, 1994
and not used during the current year. See "Notes to Consolidated Financial
Statements - Note 10" for additional explanation.

As of October 31, 1996, the following table summarizes the Company's United
States active communities under development:
(1) (2)
Contracted Remaining
Commun- Approved Homes Not Home Sites
ities Lots Delivered Delivered Available
------- -------- --------- --------- ----------

Northeast Region...... 36 7,111 2,100 964 4,047
North Carolina........ 30 2,944 1,119 208 1,617
Florida............... 9 1,491 666 212 613
Metro Washington D.C.. 2 329 250 24 55
California............ 7 950 478 46 426
------- -------- --------- --------- ----------
Total 84 12,825 4,613 1,454 6,758
======= ======== ========= ========= ==========

(1) Includes 74 lots under option.

(2) Of the total home sites available, 528 were under construction or
completed (including 106 models and sales offices), 1,214 were under
option, and 1,280 were financed through purchase money mortgages.

In addition, in substantially completed or suspended developments, the
Company had 64 homes under construction or completed including 38 homes which
are in contract and 2 models. The Company also had 384 lots without
construction (5 in contract) in these substantially completed or suspended
developments.

As of October 31, 1996, the following table summarizes the Company's United
States started or completed unsold homes:

Unsold
Homes Models Total
------ ------ -----

Northeast Region.................. 242 71 313
North Carolina.................... 68 -- 68
Florida........................... 51 10 61
Metro Washington D.C.............. 18 3 21
California........................ 67 24 91
------ ------ -----
Total 446 108 554
====== ====== =====

BACKLOG

Sales of the Company's United States residential homes typically are made
pursuant to a standard sales contract. This contract requires a nominal
customer deposit at the time of signing with the remainder of a 5% to 10% down
payment due 30 to 60 days after signing and provides the customer with a
statutorily mandated right of rescission for a period ranging up to 15 days
after execution. The contract may include a financing contingency, which
permits the customer to cancel his obligation in the event mortgage financing at
prevailing interest rates (including financing arranged or provided by the
Company) is unobtainable within the period specified in the contract. This
contingency period typically is four to eight weeks following the date of
execution.

At October 31, 1996 and October 31, 1995, the Company had a backlog of
signed contracts in the United States for 1,497 homes and 1,476 homes,
respectively, with sales values aggregating $291,070,000 and $275,701,000,
respectively. Substantially all of the Company's backlog at October 31, 1996 is
expected to be completed and closed within the next twelve months. At December
31, 1996 and 1995, the Company's backlog of signed contracts was 1,645 homes and
1,539 homes, respectively, with sales values aggregating $323,979,000 and
$280,074,000, respectively.

RESIDENTIAL LAND INVENTORY

It is the Company's objective to control a supply of land, primarily
through options, consistent with anticipated homebuilding requirements in its
housing markets. United States controlled land as of October 31, 1996,
exclusive of communities under development described under "Business and
Properties -- Residential Development Activities," is summarized in the
following table:

Number
of Proposed Total Land
Proposed Developable Option Book
Communities Lots Price Value(1)(2)
----------- ----------- ----------- -----------
(In Thousands)
Northeast Region:
Under Option........ 40 10,068 $172,251 $ 31,898
Owned............... 5 1,079 21,556
-------- ----------- -----------
Total............ 45 11,147 53,454
-------- ----------- -----------
North Carolina:
Owned............... 1 146 834
-------- ----------- -----------
Florida:
Under Option........ 3 181 $ 6,320 205
Owned............... 3 992 2,263
-------- ----------- -----------
Total............ 6 1,173 2,468
-------- ----------- -----------
Metro Washington, D.C.:
Under Option........ 2 104 $ 3,379 260
Owned............... 2 191 3,764
-------- ----------- -----------
Total............ 4 295 4,024
-------- ----------- -----------
California:
Under Option........ 2 322 $ 5,785 744
------- ----------- -----------
Totals:
Under Option........ 47 10,675 33,107
Owned............... 11 2,408 $187,735 28,417
-------- ----------- ------------
Combined Total........ 58 13,083 $ 61,524
======== =========== ============

(1) Properties under option also includes costs incurred on properties not
under option but which are under investigation. For properties under option,
the Company paid, as of October 31, 1996, option fees and deposits aggregating
approximately $12,077,000. As of October 31, 1996, the Company spent an
additional $21,030,000 in non-refundable predevelopment costs on such
properties.

(2) The book value of $61,524,000 plus net other land inventory costs of
$153,000, totals $61,677,000 which is identified on the balance sheet as
"Inventories - land, land options, and cost of projects in planning."

In its Northeast Region, the Company's objective is to control a supply of
land sufficient to meet anticipated building requirements for at least three to
five years.

In North Carolina and Metro Washington, D.C., some land historically has
been acquired from land developers on a lot takedown basis. Under a typical
agreement with the lot developer, the Company purchases a minimal number of
lots. The balance of the lots to be purchased are covered under an option
agreement or a non-recourse purchase agreement. Due to the dwindling supply of
improved lots in North Carolina and Metro Washington, D.C., the Company is
currently optioning parcels of unimproved land for development.

In Florida, the Company is focusing its development efforts primarily in
the southeast. Emphasis is principally on building single family detached
homes. The Company satisfies its land requirements primarily through a takedown
program of developed lots in existing subdivisions. As a result of its decision
to concentrate in the southeast, the Company is attempting to sell all its land
in other locations, including the parcels of owned land included in the table on
the previous page.

In California, the Company has focused its development efforts in the
southwest region. Here the emphasis is on affordable housing and will consist
of single family attached and detached homes. Where possible the Company plans
to option developed or partially developed lots with no more than fifty to
seventy-five lots to be taken down during any twelve month period.. With a
dwindling supply in California of developed lots, some land parcels will be
optioned which will require the full range of development activities. Option
fees range up to 10% of the land value.

INTERNATIONAL HOMEBUILDING

During the year ended October 31, 1996 the Company opened its first
international community in Poland. Sales contracts and backlog at October 31,
1996 was 25 homes with a base sales price of $1,752,000. Profitability of this
community will determine whether the Company pursues further overseas expansion.

CUSTOMER FINANCING

At the Company's communities, on-site personnel facilitate sales by
offering to arrange financing for prospective customers through K. Hovnanian
Mortgage, Inc. ("KHM"). Management believes that the ability to offer financing
to customers on competitive terms as a part of the sales process is an important
factor in completing sales.

KHM's business consists of providing the Company's customers with
competitive financing and coordinating and expediting the loan origination
transaction through the steps of loan application, loan approval and closing.
KHM has its headquarters in Red Bank, New Jersey and operates origination
offices in Raleigh, Charlotte and Winston-Salem, North Carolina, West Palm
Beach, Florida and Newport Beach, California. Additionally, KHM originates
loans in Pennsylvania and New York.

KHM's principal sources of revenues are: (i) net gains from the sale of
loans; (ii) revenues from the sale of the rights to service loans; and (iii)
interest income earned on mortgage loans during the period they are held by KHM
prior to their sale to investors.

KHM is approved by the Government National Mortgage Association ("GNMA") as
a seller-servicer of Federal Housing Administration ("FHA") and Veterans
Administration ("VA") loans. A portion of the conventional loans originated by
KHM (i.e., loans other than those insured by FHA or guaranteed by VA) qualify
for inclusion in loan guarantee programs sponsored by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"). KHM also originates conventional loans which are sold to a number of
private investors. KHM arranges for fixed and adjustable rate, conventional,
privately insured mortgages, FHA-insured or VA-guaranteed mortgages, and
mortgages funded by revenue bond programs of states and municipalities.

KHM is a delegated underwriter under the FHA Direct Endorsement and VA
Automatic programs in accordance with criteria established by such agencies.
Additionally, KHM has delegated underwriting authority from FNMA and FHLMC. As
a delegated underwriter, KHM may underwrite and close mortgage loans under
programs sponsored by these agencies without their prior approval, which
expedites the loan origination process.

KHM, like other mortgage bankers, customarily sells nearly all of the loans
that it originates. Loans are sold either individually or in pools to GNMA,
FNMA, or FHLMC or against forward commitments to institutional investors,
including banks and savings and loan associations.

KHM plans to grow its mortgage banking operations. Initially, KHM focused
on originating loans from customers who purchase homes from Hovnanian
Enterprises, Inc. affiliates. KHM's objective is to increase the capture rate
of these customers from the 41% rate achieved in fiscal 1996 to 70% over the
next several years. Additionally it has reduced the time to approve a loan from
an average of sixty days to under ten days. KHM believes it now offers superior
mortgage products and services and is exploring methods to offer its mortgage
products and services to unrelated third parties. These methods include direct
mailings, telemarketing activities and the soliciation of real estate and
mortgage brokers.

RENTAL PROPERTY DEVELOPMENT ACTIVITIES AND LAND INVENTORY

The Company diversified its business, on a limited scale, through the
development, acquisition and ownership of commercial properties, primarily in
central New Jersey, and, to a lesser extent, in Florida. The Company has
concentrated primarily on the construction of single-story office/warehouses and
retail strip centers. The Company's objectives are to create recurring revenues
from the rental and/or sale of its developed properties and to achieve
appreciation in the value of its properties over the long-term. The Company
expects to limit its future commercial development activities.

In connection with the development of its commercial properties, the
Company would, when possible, purchase or enter into options to purchase all
sites subject to obtaining applicable zoning and required utilities. Generally,
the Company will seek anchor tenants and other lessees for its projects before
construction begins. In some situations, on land already owned by the Company,
the Company may build office/warehouse buildings on speculation, but only to a
limited degree. Following the construction and lease-up of new buildings, the
Company intends to perform all functions relating to the management and
operation of the buildings.

The Company has completed or acquired and placed into operation the
following commercial properties:

October 31, 1996 October
Square Feet Percent 31, 1996
Location Total Leased Leased Book Value
-------- ------ ------- ------- -----------

North Brunswick, NJ:
Retail center............. 53,042 51,542 97% $ 4,468,000
Office/warehouse building. 86,155 76,400 89% 5,879,000
Office/warehouse building. 85,680 82,070 96% 6,694,000

Piscataway Township, NJ:
Retail center............. 97,520 97,520 100% 10,117,000

Franklin Township, NJ:
Retail Center............. 138,364 138,364 100% (1)

West Palm Beach, FL:
Office Building(2)........ 43,290 42,139 97% 4,430,000

Jacksonville, FL - Phase I:
Office/warehouse building. 42,456 39,306 93% 3,850,000
Office building........... 35,689 33,125 93% 3,844,000
------- -------- ----- -----------
Total.................. 582,196 560,466 96% $39,282,000
======= ======== ===== ===========

(1) Property is held in a partnership 50% owned by the Company. The
Company's investment in this partnership of $186,000 is included
in the balance sheet under "Investment In and Advances To
Unconsolidated Affiliates and Joint Venture."

(2) Includes 16,458 square feet leased to the Company's Florida
Division.

The Company has the ability to obtain long-term financing on its commercial
properties after each property is substantially leased. At October 31, 1996,
all the above listed properties had non-recourse financing totaling $31,071,000.

The Company had two residential rental properties at October 31, 1996 both
being low income senior citizen communities. These communities consist of 171
condominium apartments and are fully leased. By building these homes the
Company qualified for federal tax credits amounting to approximately
$12,000,000, which it expects to receive over ten years. At October 31, 1996,
the net book value of these communities was $11,676,000.

At October 31, 1996, the Company owned two additional parcels of commercial
land in New Jersey. One of these parcels is adjacent to the North Brunswick, NJ
commercial properties. The Company is seeking opportunities to sell, lease, or
develop this property. Its book value at October 31, 1996 amounted to
$9,808,000. On the second parcel in Newark, NJ adjacent to its University
Heights residential development, the Company is currently planning a 112,000
square foot retail center. Construction will not begin until an anchor tenant
is secured. The Company has secured a federal government urban development grant
amounting to $3,928,000 to partially defray the cost of developing the facility.
At October 31, 1996 the Company had spent $1,496,000 in site preparation costs.
At completion the total cost, net of the grant, is estimated to be $14,500,000.

In addition, the Company owns one parcel of commercial land in
Jacksonville, Florida. On a portion of this parcel the Company has constructed
78,145 square feet of office/warehouse and office buildings. The Company will
build additional buildings on this parcel after existing space is leased. The
book value of the remaining land at October 31, 1996 amounted to $1,522,000.

CERTAIN OPERATING POLICIES AND PROCEDURES

Financial Goals. The Company is focusing on housing margin improvement and
de-emphasizing revenue growth. The Company has been growing rapidly since 1991.
Housing revenues rose from $587 million during the year ended February 28, 1994
to $807 million for the year ended October 31, 1996. While housing revenues
have increased, housing margins have decreased from 1994 to 1996. To improve
its housing margin, the Company will focus on reducing overheads, increasing
associate productivity and reducing construction costs by decreasing
construction cycle times and using national and regional contracts. Also the
Company has consolidated its vendor base and centralized purchasing functions in
the Northeast Region which, when implemented in all of the Northeast Region's
communities, is projected to result in savings of approximately $6 million a
year.

Strategic Initiatives. In order to help improve housing margins the
Company previously introduced three strategic initiatives. These initiatives
are Partners In Excellence, Process Redesign, and Training.

Partners In Excellence (the Company's total quality management initiative)
is intended to focus on improving the way operations are performed. It involves
all Company associates through a systematic, team-oriented approach to
improvement. It increases the Company's profits by streamlining processes and
by reducing errors which cost money.

Process Redesign is a fundamental rethinking and radical redesign of our
processes to achieve dramatic improvements in performance. The Company's
Process Redesign efforts are currently focused on two areas: financial planning
and reporting and home construction. The financial planning and reporting team
is intended to integrate systems and provide flexible and easy access to data
from all operating areas in the Company. The home construction team is
analyzing the entire production process. It is working to improve estimating,
bidding, contracting, budgeting, scheduling, work/materials ordering, receiving,
inspecting, and payment processing.

Training is designed to provide our associates with the knowledge,
attitudes, skill and habits necessary to succeed at their jobs. The Company's
Training Department regularly conducts training classes in sales, construction,
administrative, and managerial areas. In addition, as Process Redesign develops
new systems, the Training Department is responsible for educating the Company's
associates on the systems, procedures, and operations.

Land Acquisition, Planning and Development. Before entering into a
contract to acquire land, the Company completes extensive comparative studies
and analyses which assist the Company in evaluating the economic feasibility of
such land acquisition. The Company generally follows a policy of acquiring
options to purchase land for future community developments. The Company
attempts to acquire land with a minimum cash investment and negotiate takedown
options, thereby limiting the financial exposure to the amounts invested in
property and predevelopment costs. This policy of land acquisition may somewhat
raise the price of land that the Company acquires, but significantly reduces
risk. Further, this policy generally allows the Company to obtain necessary
development approvals before acquisition of the land, thereby enhancing the
value of the options and the land eventually acquired.

The Company's option and purchase agreements are typically subject to
numerous conditions, including, but not limited to, the Company's ability to
obtain necessary governmental approvals for the proposed community. Generally,
the deposit on the agreement will be returned to the Company if all approvals
are not obtained, although predevelopment costs may not be recoverable. By
paying an additional, nonrefundable deposit, the Company has the right to extend
a significant number of its options for varying periods of time. In all
instances, the Company has the right to cancel any of its land option agreements
by forfeiture of the Company's deposit on the agreement. In such instances, the
Company generally is not able to recover any predevelopment costs.

The Company's development activities include site planning and engineering,
obtaining environmental and other regulatory approvals and constructing roads,
sewer, water and drainage facilities, and for the Company's residential
developments, recreational facilities and other amenities. These activities are
performed by the Company's staff, together with independent architects,
consultants and contractors. The Company's staff also carries out long-term
planning of communities.

Design. The Company's residential communities are generally located in
suburban areas near major highways. The communities are designed as
neighborhoods that fit existing land characteristics. The Company strives to
create diversity within the overall planned community by offering a mix of homes
with differing architecture, textures and colors. Wherever possible,
recreational amenities such as a swimming pool, tennis courts and tot lots are
included.

Construction. The Company designs and supervises the development and
building of its communities. Its homes are constructed according to
standardized prototypes which are designed and engineered to provide innovative
product design while attempting to minimize costs of construction. The Company
employs subcontractors for the installation of site improvements and
construction of homes. Agreements with subcontractors are generally short term
and provide for a fixed price for labor and materials. The Company rigorously
controls costs through the use of a computerized monitoring system. Because of
the risks involved in speculative building, the Company's general policy is to
construct a residential multi-family building only after signing contracts for
the sale of at least 75% of the homes in that building. Single family detached
homes are usually constructed after the signing of a contract and mortgage
approval has been obtained.

Materials and Subcontractors. The Company attempts to maintain efficient
operations by utilizing standardized materials available from a variety of
sources. In addition, the Company contracts with subcontractors representing
all building trades in connection with the construction of its homes. In recent
years, the Company has experienced no material construction delays due to
shortages of materials or labor. The Company cannot predict, however, the
extent to which shortages in necessary materials or labor may occur in the
future.

Marketing and Sales. The Company's residential communities are sold
principally through on-site sales offices. In order to respond to its
customers' needs and trends in housing design, the Company relies upon its
internal market research group to analyze information gathered from, among other
sources, buyer profiles, exit interviews at model sites, focus groups and
demographic data bases. The Company makes use of newspaper, radio, magazine,
billboard, video and direct mail advertising, special promotional events,
illustrated brochures, full-sized and scale model homes in its comprehensive
marketing program. For the year ended October 31, 1996, the Company's
advertising expenditures totaled $11,513,000.

Customer Service and Quality Control. The Company's associates responsible
for customer service participate in pre-closing quality control inspection as
well as responding to post-closing customer needs. Prior to closing, each home
is inspected and any necessary completion work is undertaken by the Company. In
some of its markets the Company is also enrolled in a standard limited warranty
program which, in general, provides a homebuyer with a one-year warranty for the
home's materials and workmanship, a two-year warranty for the home's heating,
cooling, ventilating, electrical and plumbing systems and a ten-year warranty
for major structural defects. All of the warranties contain standard
exceptions, including, but not limited to, damage caused by the customer.

Customer Financing. The Company sells its homes to customers who generally
finance their purchases through mortgages. During the year ended October 31,
1996, approximately 41% of the Company's customers obtained mortgages originated
by the Company's wholly-owned mortgage banking subsidiary, with a substantial
portion of the Company's remaining customers obtaining mortgages from various
independent lending institutions. Mortgages originated by the Company's wholly-
owned mortgage banking subsidiary are sold in the secondary market.

Financing arrangements with independent lending institutions are at
prevailing rates and on terms in accordance with the lending institutions
policies. Mortgages offered by the Company's subsidiary are on terms similar to
those offered by independent lending institutions. There are no assurances that
mortgage financing will remain readily available to the Company's customers at
affordable rates.

COMPETITION

The Company's residential business is highly competitive. The Company
competes in each of the geographic areas in which it operates with numerous real
estate developers, ranging from small local builders to larger regional and
national builders and developers, some of which have greater sales and financial
resources than the Company. Resales of housing and the availability of rental
housing provide additional competition. The Company competes primarily on the
basis of reputation, price, location, design, quality, service and amenities.

Competition in commercial real estate is considerable. The Company
competes in the acquisition of properties for development and in the leasing of
space with many other realty and general contracting concerns, both local and
national, many of which have greater resources than the Company. To the extent
the level of vacant office space in the metropolitan or suburban areas in which
the Company's commercial properties are located increases, the Company would not
proceed with the development of such properties and, with respect to existing
developments, the Company's ability to increase rental rates and/or maintain its
occupancy levels could be adversely affected.

REGULATION AND ENVIRONMENTAL MATTERS

General. The Company is subject to various local, state and federal
statutes, ordinances, rules and regulations concerning zoning, building design,
construction and similar matters, including local regulations which impose
restrictive zoning and density requirements in order to limit the number of
homes that can eventually be built within the boundaries of a particular
locality. In addition, the Company is subject to registration and filing
requirements in connection with the construction, advertisement and sale of its
communities in certain states and localities in which it operates even if all
necessary government approvals have been obtained. The Company may also be
subject to periodic delays or may be precluded entirely from developing
communities due to building moratoriums that could be implemented in the future
in the states in which it operates. Generally, such moratoriums relate to
insufficient water or sewerage facilities or inadequate road capacity.

Environmental. The Company is also subject to a variety of local, state
and federal statutes, ordinances, rules and regulations concerning protection of
health and the environment ("environmental laws"). The particular environmental
laws which apply to any given community vary greatly according to the community
site, the site's environmental conditions and the present and former uses of the
site. These environmental laws may result in delays, may cause the Company to
incur substantial compliance and other costs, and prohibit or severely restrict
development in certain environmentally sensitive regions or areas.

The Florida Growth Management Act of 1985 became fully effective in Palm
Beach County on February 1, 1990. The act requires that infrastructure,
including roads, sewer and water lines must be in existence concurrently with
the construction of the development. If such infrastructure is not concurrently
available, then the community cannot be developed. This will have an effect on
limiting the amount of land available for development and may delay approvals of
some developments.

Fair Housing Act. In July 1985, New Jersey adopted the Fair Housing Act
which established an administrative agency to adopt criteria by which
municipalities will determine and provide for their fair share of low and
moderate income housing. This agency adopted such criteria in May 1986. Its
implementation thus far has caused some delay in approvals for some of the
Company's New Jersey communities and may result in a reduction in the number of
homes planned for some properties.

Both prior to the enactment of the Fair Housing Act and in its
implementation thus far, municipal approvals in some of the New Jersey
municipalities in which the Company owns land or land options required the
Company to set aside up to 22% of the approved homes for sale at prices
affordable to persons of low and moderate income. In order to comply with such
requirements, the Company must sell these homes at a loss. The Company attempts
to reduce some of these losses through increased density, certain cost saving
construction measures and reduced land prices from the sellers of property.
Such losses are absorbed by the market priced homes in the same developments.

State Planning Act. Pursuant to the 1985 State Planning Act, the New
Jersey State Planning Commission has adopted a State Development and
Redevelopment Plan ("State Plan"). The State Plan, if fully implemented, would
designate large portions of the state as unavailable for development or as
available for development only at low densities, and other portions of the state
for more intense development. State government agencies would be required to
make permitting decisions in accordance with the State Plan, if it is fully
implemented. The state government agencies have not yet adopted policies and
regulations to fully implement the State Plan. However, at least one state
agency has issued an Executive Order requiring compliance with the State Plan.
It is unclear what effect this Executive Order may have on the Company's ability
to develop its lands.

Conclusion. Despite the Company's past ability to obtain necessary permits
and approvals for its communities, it can be anticipated that increasingly
stringent requirements will be imposed on developers and homebuilders in the
future. Although the Company cannot predict the effect of these requirements,
they could result in time-consuming and expensive compliance programs and
substantial expenditures for pollution and water quality control, which could
have a material adverse effect on the Company. In addition, the continued
effectiveness of permits already granted or approvals already obtained is
dependent upon many factors, some of which are beyond the Company's control,
such as changes in policies, rules and regulations and their interpretation and
application.

Company Offices. The Company owns its corporate headquarters, a four-
story, 24,000 square feet office building located in Red Bank, New Jersey, a
43,290 square feet office building located in West Palm Beach, Florida of which
16,458 square feet house the Florida divisional office, a 17,450 square feet
office building located in Winston-Salem, North Carolina, and 17,225 square feet
in a Middletown, New Jersey condominium office building. The Company leases
office space consisting of 40,000 square feet in various New Jersey locations,
12,000 square feet in Fairfax, Virginia, 13,000 square feet in various North
Carolina locations, 3,400 square feet in Broward County, Florida, and 5,000
square feet in southwestern California.
ITEM 3 - LEGAL PROCEEDINGS

During fiscal 1989, the Company became aware that a certain fire-retardant
plywood commonly used in the roof construction of multi-family homes may contain
a product defect causing accelerated deterioration of the plywood. The Company
has determined that such plywood was used principally in 33 of its communities
containing approximately 11,750 homes.

In August 1989 the Company brought suit in an action entitled K. Hovnanian
at Bernards I, Inc., et al. v. Hoover Treated Wood Products, Inc., et al.
(No. L-11822-89) in the Superior Court, Law Division, Middlesex County, New
Jersey against the plywood material manufacturers, treaters, suppliers and
others (the "Defendants") to determine the proper responsibility for damages,
to protect its interests and to recover its damages.

In November 1992 the Company and the Settling Associations entered into a
settlement agreement with most of the Defendants. Based upon the settlement
monies received, the use of the Settling Associations' roof shingle reserves,
and the actual expenditures in performing the repairs, the Company believes the
repair costs will not require it to set aside future reserves for such roof
repairs.

In addition, the Company is involved from time to time in litigation
arising in the ordinary course of business, none of which is expected to have a
material adverse effect on the Company.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the year ended October 31, 1996 no matters
were submitted to a vote of security holders.

EXECUTIVE OFFICERS OF THE REGISTRANT

Information on executive officers of the registrant is incorporated herein
from Part III, Item 10.

PART II

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS

The number of shares and all data presented on a per share basis in this
Form 10-K have been adjusted to give effect to all stock splits. The Company's
Class A Common Stock is traded on the American Stock Exchange and was held by
approximately 1,200 shareholders of record at January 10, 1997. Prior to the
Company's recapitalization in September 1992 the Company's Common Stock was also
traded on the American Stock Exchange. (See "Notes to Consolidated Financial
Statements - Note 1" for additional explanation on recapitalization.) There is
no established public trading market for the Company's Class B Common Stock,
which was held by approximately 900 shareholders of record at January 10, 1997.
The high and low sales prices for the Company's Class A Common Stock were as
follows for each fiscal quarter during the year ended October 31, 1996, October
31, 1995, the eight months ended October 31, 1994, and the years ended February
28, 1994:

Class A Common Stock
---------------------------------------------------------------
Oct. 31, 1996 Oct. 31, 1995 Oct 31, 1994(1) Feb 28, 1994
-------------- -------------- -------------- ---------------
Quarter High Low High Low High Low High Low
- ------- ------ ----- ------ ------ ------ ------ ------ ------
First........ $7.75 $6.25 $6.25 $4.75 $13.88 $9.88 $12.38 $10.50
Second....... $8.25 $6.25 $6.50 $5.00 $11.38 $7.75 $14.13 $10.63
Third........ $7.25 $5.06 $7.13 $5.25 $ 8.63 $5.75 $18.13 $13.25
Fourth....... $6.63 $5.50 $8.25 $5.31 -- -- $16.00 $13.00

(1) For eight months ended October 31, 1994 the third period represents the two
months September and October 1994.

Certain debt instruments to which the Company is a party contain
restrictions on the payment of cash dividends. As a result of the most
restrictive of these provisions, approximately $45,063,000 was free of such
restrictions at October 31, 1996. The Company has never paid dividends nor does
it currently intend to pay dividends.

ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected financial data for the Company and
its consolidated subsidiaries and should be read in conjunction with the
financial statements included elsewhere in this Form 10-K. Per common share
data and weighted average number of common shares outstanding reflect all stock
splits.

<TABLE>
<CAPTION>
Eight
Year Ended Months Year Ended
------------------ Ended -----------------------------
Summary Consolidated October October October February February February
Income Statement Data 31, 1996 31, 1995 31, 1994 31, 1994 28, 1994 28, 1993
- ------------------------------ -------- -------- -------- -------- --------- --------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $807,464 $777,745 $386,585 $587,010 $429,315 $318,527
Expenses...................... 782,458 756,091 402,090 557,859 414,790 316,633
Income(loss) before income
taxes, extraordinary loss
and cumulative effect of
change in accounting for
income taxes................ 25,006 21,654 (15,505) 29,151 14,525 1,894
State and Federal income tax.. 7,719 7,526 (5,075) 9,229 4,735 299
Extraordinary loss............ (1,277)
Cumulative effect of change
in accounting for income
taxes....................... 883
-------- -------- -------- -------- -------- --------
Net income (loss)............. $ 17,287 $ 14,128 $(10,430) $ 18,645 $ 9,790 $ 2,478
======== ======== ======== ======== ======== ========

Earnings per common share:
Income (loss) before
extraordinary loss and
cumulative effect of
change in accounting
for income taxes............ $ 0.75 $ 0.61 $ (0.46) $ 0.87 $ 0.43 $ 0.07
Extraordinary loss............. (0.05)
Cumulative effect of change
in accounting for income
taxes........................ 0.04
-------- -------- -------- -------- -------- --------
Net income (loss)............. $ 0.75 $ 0.61 $ (0.46) $ 0.82 $ 0.43 $ 0.11
======== ======== ======== ======== ======== ========
Weighted average number of
common shares outstanding... 23,037 23,032 22,906 22,821 22,775 21,988

Summary Consolidated
Balance Sheet Data
- ------------------------------
Total assets.................. $614,111 $645,378 $612,925 $539,602 $465,029 $399,455
Mortgages and notes payable.... $145,336 $183,044 167,179 68,244 $ 66,699 $105,071
Bonds collateralized by
mortgages receivable........ $ 9,231 $ 17,880 20,815 30,343 39,914 49,879
Participating senior
subordinated debentures
and subordinated notes...... $200,000 $200,000 200,000 200,000 152,157 67,723
Stockholders' equity.......... $193,622 $176,335 162,130 171,001 151,937 141,989

</TABLE>

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CAPITAL RESOURCES AND LIQUIDITY

The Company's cash uses during the twelve months ended October 31,1996 were
for operating expenses, seasonal increases in housing inventories, construction,
income taxes and interest. The Company provided for its cash requirements from
outside borrowings, the revolving credit facility, the sale of a commercial
facillity, and land purchase notes, as well as from housing and other revenues.
The Company believes that these sources of cash are sufficient to finance its
working capital requirements and other needs.

The Company's bank borrowings are made pursuant to a revolving credit
agreement (the "Agreement") which provides a revolving credit and letter of
credit line of up to $245,000,000 through March 1999. Interest is payable
monthly and at various rates of either prime plus 1/4% or Libor plus 1.75%. The
Company believes that it will be able either to extend the Agreement beyond
March 1999 or negotiate a replacement facility, but there can be no assurance of
such extension or replacement facility. The Company currently is in compliance
and intends to maintain compliance with its covenants under the Agreement. As
of October 31, 1996, $30,000,000 of indebtedness was outstanding under the
Agreement.

The aggregate principal amount of subordinated indebtedness issued by the
Company and outstanding as of October 31, 1996 was $200,000,000. Annual sinking
fund payments of $20,000,000 are required in April 2001 and 2002 with additional
payments of $60,000,000 and $100,000,000 due in April 2002 and June 2005,
respectively.

The Company's mortgage banking subsidiary borrows under a bank warehousing
arrangement. Other finance subsidiaries formerly borrowed from a multi-builder
owned financial corporation and a builder owned financial corporation to
finance mortgage backed securities but in fiscal 1988 the Company decided to
cease further borrowing from multi-builder and builder owned financial
corporations. These non-recourse borrowings have been generally secured by
mortgage loans originated by one of the Company's subsidiaries. As of October
31, 1996, the aggregate outstanding principal amount of such borrowings was
$64,427,000.

The book value of the Company's inventories, rental condominiums, and
commercial properties completed and under development amounted to the following:

October 31, October 31,
1996 1995
------------ ------------

Residential real estate inventory....... $376,307,000 $404,413,000
Residential rental property............. 12,190,000 12,381,000
------------ ------------
Total residential real estate....... 388,497,000 416,794,000
Commercial properties................... 53,204,000 62,297,000
------------ ------------
Combined Total...................... $441,701,000 $479,091,000
============ ============

Total residential real estate decreased $28,297,000 from October 31, 1995
to October 31, 1996 as a result of an inventory decrease of $28,106,000 and a
residential rental property decrease of $191,000. The decrease in residential
real estate inventory was primarily due to the Company's efforts to reduce
inventories in the Company's very competitive Florida and Metro Washington, D.
C. markets. Also inventories in the Northeast declined due to the Company's
efforts to increase inventory turnover and reduce its debt to equity percentage.
Residential homes under construction or completed and included in residential
real estate inventory at October 31, 1996 are expected to be closed during the
next twelve months. Most residential real estate completed or under development
is financed through the Company's line of credit and subordinated indebtedness.

The following table summarizes housing lots included in the Company's total
residential real estate (including Poland):

Total Contracted Remaining
Home Not Lots
Lots Delivered Available
-------- ---------- ---------
October 31, 1996:
Owned.......................... 9,819 1,446 8,373
Optioned....................... 12,041 76 11,965
-------- ---------- ---------
Total........................ 21,860 1,522 20,338
======== ========== =========

October 31, 1995:
Owned.......................... 10,279 1,379 8,900
Optioned....................... 12,823 97 12,726
-------- ---------- ---------
Total........................ 23,102 1,476 21,626
======== ========== =========

Included in the remaining lots available are the following homes:

October October
31, 1996 31, 1995
-------- --------

Unsold homes under construction or complete..... 448 321
Model homes..................................... 110 123
-------- --------
Total...................................... 558 444
======== ========

The Company's commercial properties represent long-term investments in
commercial and retail facilities completed or under development (see "Investment
Properties" under "Results of Operations"). When individual facilities are
completed and substantially leased, the Company will have the ability to obtain
long-term financing on such properties. At October 31, 1996 the Company had
long-term non-recourse financing aggregating $31,071,000 on six commercial
facilities, a decrease from October 31, 1995, due to $419,000 in principal
amortization. In January 1996 the Company sold a retail center with a book
value of $8,022,000 at October 31, 1995. The sale of this center and
depreciation were the primary causes for a $9,093,000 decrease in commercial
properties.

Collateral Mortgage Financing - collateral for bonds payable consist of
collateralized mortgages receivable which are pledged against non-recourse
collateralized mortgage obligations. Financial Services - mortgage loans held
for sale consist of residential mortgages receivable of which $57,095,000 and
$45,669,000 at October 31, 1996 and October 31, 1995, respectively, are being
temporarily warehoused and awaiting sale in the secondary mortgage market. The
balance of mortgage loans held for sale is being held as an investment by the
Company. The Company may incur risk with respect to mortgages that are
delinquent, but only to the extent the losses are not covered by mortgage
insurance or resale value of the house. Historically, the Company has incurred
minimal credit losses.

RESULTS OF OPERATIONS

The Company's operations consist primarily of residential housing
development and sales in its Northeast Region (comprised primarily of New Jersey
and eastern Pennsylvania), in southeastern Florida, North Carolina, Metro
Washington, D. C. (northern Virginia), southwestern California, and Poland.
Operations in Poland began for the first time during the year ending October 31,
1996, but deliveries will not occur until the year ended October 31, 1997. In
addition, the Company develops and operates commercial properties as long-term
investments in New Jersey, and, to a lesser extent, Florida.

On May 10, 1994, the Board of Directors of the Company adopted a resolution
providing that the date for the year end of the fiscal year of the Company be
changed from the last day of February to October 31. The reports covering the
three month periods ended May 31, 1994 and August 31, 1994 were filed on Form
10-Q. The report covering the eight month transition period of March 1, 1994
through October 31, 1994 was filed on Form 10-K. Thereafter, the Company has
filed reports as of January 31, April 30, July 31, and October 31. At October
31, 1996 the Company reclassified certain expenses previously reported as
selling, general and administration to cost of sales. These expenses were sales
commissions, buyer concessions, the amortization of prepaid selling expenses,
property taxes and condominium association subsidies. The amount of the
reclassification was $35,963,000, $33,435,000, $16,686,000 and $22,262,000 for
the years ended October 31, 1996 and October 31, 1995, the eight months ended
October 31, 1994 and the year ended February 28, 1994, respectively. In
addition, the Company reclassified its title revenues previously reported as
other homebuilding revenues to financial service revenues, and title expenses
from other operations to financial service expenses.

During the year ended October 31, 1996, October 31, 1995, the eight months
ended October 31, 1994, and the year ended February 28, 1994, the Company's
Northeast Region and North Carolina Division consistently produced operating
profits. These profits have been reduced by net losses from its other housing
divisions, its other operations and the establishment of reserves to reduce the
book value of certain residential inventories to their estimated fair value (net
realizable value for periods prior to the year ended October 31, 1995 - see
"Notes to Consolidated Financial Statements - Note 10.") During the eight
months ended October 31, 1994 the Company's operations resulted in a net loss
primarily from the losses from other operations, a provision to reduce certain
inventory to net realizable value, lower gross margins, and higher selling,
general, and administrative expenses due to the expensing of such costs over
fewer average monthly home deliveries during the eight month transition period
ended October 31, 1994 compared to the average monthly home deliveries over
twelve months.

Total Revenues

Compared to the same prior period revenues increased (decreased) as
follows:
Eight
Year Ended Months Year
-------------------- Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
--------- --------- --------- ---------
(Dollars in Thousands)
Homebuilding:
Sale of homes...................$ 24,201 $ 69,611 $113,381 $160,183
Land sales and other revenues... 3,214 5,640 1,684 (5,831)
Financial services................ 868 (25) 1,589 1,803
Investment properties............. 1,388 (792) 1,054 2,415
Collateralized mortgage financing. 48 (1,132) (519) (875)
--------- --------- --------- ---------
Total change.................$ 29,719 $ 73,302 $117,189 $157,695
========= ========= ========= =========
Percent change.................. 3.8% 10.4% 43.5% 36.7%
========= ========= ========= =========

U. S. Homebuilding

Compared to the same prior period, housing revenues increased $24.2 million
or 3.3% for the year ended October 31, 1996, $69.6 million or 10.4% for the year
ended October 31, 1995, $113.4 million or 44.8% for the eight months ended
October 31, 1994, and $160.2 million or 40.3% for the year ended February 28,
1994. Housing revenues are recorded at the time each home is delivered and
title and possession have been transferred to the buyer.

Information on homes delivered by market area is set forth below:

Eight
Year Ended Months Year
--------------------- Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
--------- --------- --------- ---------
(Dollars in Thousands)
Northeast Region(1):
Housing Revenues.........$460,931 $492,388 $223,582 $389,577
Homes Delivered.......... 2,364 2,707 1,403 2,527

North Carolina:
Housing Revenues.........$123,347 $115,919 $ 78,465 $ 72,639
Homes Delivered.......... 738 718 558 580

Florida:
Housing Revenues.........$ 99,085 $ 67,272 $ 37,076 $ 48,780
Homes Delivered.......... 632 451 265 405

Metro Washington, D. C.:
Housing Revenues.........$ 16,749 $ 36,006 $ 25,236 $ 44,783
Homes Delivered.......... 75 186 137 288

California:
Housing Revenues.........$ 64,570 $ 27,707 $ 736 --
Homes Delivered.......... 325 149 4 --

Other:
Housing Revenues......... -- $ 1,189 $ 1,227 $ 1,710
Homes Delivered.......... -- 33 20 28

Totals:
Housing Revenues.........$764,682 $740,481 $366,322 $557,489
Homes Delivered.......... 4,134 4,244 2,387 3,828

(1) Excludes suspended operations in New York which are included with New
Hampshire in "Other".

The overall increase in housing revenues was primarily the result of
increases in average sales prices in all the Company's markets. The increased
average sales prices are primarily the result of diversifying the Company's
product mix in the Northeast Region to include more detached single family homes
and larger townhouses with garages designed for the move-up buyer. In Florida,
average sales prices are increasing as a result of the addition of new, higher
priced single family developments. In North Carolina, average sales prices
increased primarily due to the addition of higher priced communities. In Metro
Washington, D.C. average sales prices increased because there was a higher
percentage of single family detached homes delivered. The decrease in the
number of homes delivered during the year ended October 31, 1996 is primarily
due to the decreased deliveries in the Northeast Region. This decrease was due
to the Company's attempt to maximize profits through increased margins not
increased volume. In Metro Washington, D. C. deliveries declined since the
Company cut back its operations due to a highly competitive market.

Unaudited quarterly housing revenues and sales contracts using base sales
prices by market area for the years ending October 31, 1996 and 1995 are set
forth below:

Quarter Ended
------------------------------------------
October July April January
31, 1996 31, 1996 30, 1996 31, 1996
--------- --------- --------- ---------
(In Thousands)
Housing Revenues:
Northeast Region........... $210,951 $112,665 $ 81,950 $ 55,365
North Carolina............. 44,334 33,506 24,445 21,062
Florida.................... 38,910 21,407 20,890 17,878
Metro Washington, D.C...... 5,538 3,614 3,200 4,397
California................. 25,747 15,936 13,019 9,868
--------- --------- --------- ---------
Total.................. $325,480 $187,128 $143,504 $108,570
========= ========= ========= =========

Sales Contracts (Net of
Cancellations):
Northeast Region........... $149,930 $ 94,933 $147,576 $ 55,785
North Carolina............. 28,973 31,485 43,136 19,594
Florida.................... 13,485 19,668 41,003 19,315
Metro Washington, D.C...... 1,638 2,249 5,821 3,463
California................. 16,419 14,847 19,496 8,209
--------- --------- --------- ---------
Total.................. $210,445 $163,182 $257,032 $106,366
========= ========= ========= =========

Quarter Ended
------------------------------------------
October July April January
31, 1995 31, 1995 30, 1995 31, 1995
--------- --------- --------- ---------
(In Thousands)
Housing Revenues:
Northeast Region........... $228,548 $101,431 $ 89,536 $ 72,874
North Carolina............. 41,581 29,670 23,083 21,585
Florida.................... 23,387 14,037 13,931 15,917
Metro Washington, D.C...... 9,764 12,335 9,021 4,886
California................. 16,545 5,902 3,166 2,094
Other...................... -- -- 870 318
--------- --------- --------- ---------
Total.................. $319,825 $163,375 $139,607 $117,674
========= ========= ========= =========

Sales Contracts (Net of
Cancellations):
Northeast Region........... $102,506 $104,449 $115,774 $ 78,964
North Carolina............. 28,494 33,017 32,208 25,529
Florida.................... 19,197 17,541 19,734 13,214
Metro Washington, D.C...... 4,621 9,325 13,719 5,094
California................. 13,624 10,989 7,014 4,227
Other...................... -- -- 751 42
--------- --------- --------- ---------
Total.................. $168,442 $175,321 $189,200 $127,070
========= ========= ========= =========

The Company's contract backlog using base sales prices by market area is
set forth below:

October October October February
31, 1996 31, 1995 31, 1994 28, 1994
--------- --------- --------- ---------
(Dollars in Thousands)
Northeast Region:
Total Contract Backlog.....$198,248 $176,517 $227,719 $173,430
Number of Homes............ 977 885 1,284 1,182

North Carolina:
Total Contract Backlog.....$ 43,587 $ 43,336 $ 39,719 $ 55,620
Number of Homes............ 233 253 240 402

Florida:
Total Contract Backlog.....$ 36,910 $ 36,213 $ 30,283 $ 37,837
Number of Homes............ 217 243 215 278

Metro Washington, D. C.:
Total Contract Backlog.....$ 4,252 $ 6,592 $ 7,933 $ 10,377
Number of Homes............ 24 28 43 50

California:
Total Contract Backlog.....$ 8,073 $ 13,043 $ 4,405 --
Number of Homes............ 46 67 21 --

Other:
Total Contract Backlog..... -- -- $ 396 $ 863
Number of Homes............ -- -- 7 14

Totals:
Total Contract Backlog.....$291,070 $275,701 $310,455 $278,127
Number of Homes............ 1,497 1,476 1,810 1,926

The Company has written down certain residential inventories $1.6 million
and $2.8 million during the years ended October 31, 1996 and October 31, 1995,
respectively, to their estimated fair value. See "Notes to Consolidated
Financial Statements - Note 10." for additional explanation. These writedowns
were established primarily because of lower property values due to economic
downturns or a change in the marketing strategy to liquidate a particular
property.

The writedowns of residential inventories during the years ended October
31, 1996 and October 31, 1995 were primarily attributable to one community in
New York, two in New Jersey, a parcel of land in Florida, and four communities
in Metro Washington, D.C. In the New York community, the 1995 writedown is an
addition to 1994 and prior years' reserves due to reduced sales prices, buyers'
concessions, and an extended sellout period. In New Jersey the 1996 and 1995
writedowns were due to the change in use of a parcel of land from residential to
commercial and due to the termination of home sales in a community and the
offering of the remaining owned lots for sale, respectively. In Florida a
parcel of idle land was written down in 1996 due to a decline in land values.
In Metro Washington, D.C. the 1996 writedown was primarily due to reduced sales
prices in one community. The 1995 writedown was also due to the termination of
home sales in two communities and the offering of the remaining owned lots for
sale. Also in Metro Washington, D.C. a reserve was taken in 1995 against a
parcel of land which the Company is attempting to liquidate through lot sales
and increased in 1996 due to continued decline in lot values. At October 31,
1996 and 1995 residential inventories were reduced $5.1 million and $9.6
million, respectively, to reduce such inventories to estimated fair value.

Prior to the year ended October 31, 1995 the Company established reserves
to reduce certain residential inventories to their estimated net realizable
values including costs to carry and dispose. These reserves were established
primarily because of lower property values due to economic downturns or a change
in the marketing strategy to liquidate a particular property. The established
reserves are reduced for carrying costs (i.e., property taxes, interest, etc.)
incurred or losses incurred upon property sale. During the eight months ended
October 31, 1994, the Company established reserves of $6.4 million. This
reserve was primarily attributable to the New York community noted above.

Cost of sales includes expenses for housing and land and lot sales. A
breakout of such expenses for housing sales and housing gross margin is set
forth below:

Eight
Year Ended Months Year
--------------------- Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
--------- --------- --------- ---------
(Dollars In Thousands)

Sale of homes........... $764,682 $740,481 $366,322 $557,489
Cost of sales........... 638,944 617,681 312,994 456,915
--------- --------- --------- ---------
Housing gross margin.... $125,738 $122,800 $ 53,328 $100,574
========= ========= ========= =========
Gross margin percentage. 16.4% 16.6% 14.6% 18.0%
========= ========= ========= =========

As noted above, certain expenses are now being included in cost of sales.
These costs amounted to 4.7%, 4.5%, 4.5%, and 4.0% of sale of homes revenues for
the years ended October 31, 1996 and October 31, 1995, the eight months ended
October 31, 1994 and the year ended February 28, 1994, respectively.

The Company sells a variety of home types in various local communities,
each yielding a different gross margin. As a result, depending on the mix of
both communities and of home types delivered, consolidated gross margin will
fluctuate up or down. During the year ended October 31, 1996 gross margins
improved in all the Company's markets except Metro Washington, D.C. compared to
the year ended October 31, 1995. These increases were offset by a change in
geographic and product mix with an additional 6.2% of home deliveries coming
from outside the Northeast Region where gross margins are traditionally lower.
Although material costs increased, the Company was able to improve margins
primarily due to the Company's cost reduction efforts. Such efforts include
more standardized designs, and national purchase contracts.

Selling and general administrative expenses increased $0.8 million during
the year ended October 31, 1996 compared to the prior year. As a percentage of
homebuilding revenues such expenses decreased to 7.7% for the year ended October
31, 1996 from 7.9% for the prior year. The dollar increase is due primarily to
increased home sales resulting in increased advertising and sales center
operations. The percentage decrease is primarily due to the increased
deliveries. Such expenses increased $5.7 million during the eight months ended
October 31, 1994 and $9.6 million during the year ended February 28, 1994,
respectively, compared to the similar prior period. These increases were also
due primarily to increased home sales. As a percentage of housing revenues,
such expenses decreased to 9.2% for the eight months ended October 31, 1994 from
11.2% for the similar prior period. As a percentage of housing revenues, such
expenses decreased to 7.4% for the year ended February 28, 1994 from 7.9% for
the year ended February 28, 1993.

Land Sales and Other Revenues

Land sales and other revenues consist primarily of land and lot sales,
interest income, contract deposit forfeitures, corporate owned life insurance
benefits, and California housing management operations.

A breakout of land and lot sales is set forth below:

Eight
Year Ended Months Year
------------------ Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
-------- -------- -------- --------
(In Thousands)

Land and lot sales................ $13,998 $ 8,101 $ 2,812 $ 4,188
Cost of sales..................... 12,548 6,714 2,643 3,158
-------- -------- -------- --------
Land and lot sales gross margin... $ 1,450 $ 1,387 $ 169 $ 1,030
======== ======== ======== ========

Land and lot sales are incidental to the Company's residential housing
operations and are expected to continue in the future but may significantly
fluctuate up or down.

During the year ended October 31, 1995 other revenues included a $1.0
million gain from the sale of an investment and $1.2 million of net interest
receipts due to amendments to prior years' Federal income tax returns. During
the eight months ended October 31, 1994 the Company purchased a home building
and management company in California for $0.8 million. Although no new
management contracts have been obtained, the contracts resulted in $1.0 million
and $1.7 million of revenues for the year ended October 31, 1995 and the eight
months ended October 31, 1994, respectively. Included in Other Operations (see
below) are expenses associated with the California homebuilding management
operations and amortization of all of the acquisition price of the management
contracts of $0.8 million.

International Homebuilding

Financial Services

Financial services consists primarily of originating mortgages from sales
of the Company's homes, and selling such mortgages in the secondary market. In
addition, title insurance activities have been reclassified from other housing
operations to financial services as noted above. Approximately 41%, 34%, 29%,
and 27% of the Company's homebuyers obtained mortgages originated by the
Company's wholly-owned mortgage banking subsidiaries during the years ended
October 31, 1996 and 1995, the eight months ended October 31, 1994, and the year
ended February 28, 1994, respectively. The Company's mortgage banking goals are
to improve profitability by increasing the capture rate of its homebuyers and
expanding its business to include originations from unrelated mortgages. In
addition, its goals included reducing expenses by reducing mortgage processing
time. During the year ended October 31, 1996 processing time from application
to issuance of approval was reduced to an average of under 10 days. As a result
of increased capture rates of Company homebuyers and reduced costs, primarily
through reduced processing time, the mortgage banking operations have almost
reached break even for the year ended October 31, 1996 compared to losses in
previous years. The Company expects further profit improvements in fiscal 1997
and beyond. Most servicing rights on new mortgages originated by the Company
will be sold as the loans are closed.

Investment Properties

Investment Properties consist of rental properties, property management,
and gains or losses from sale of such property. At October 31, 1996, the
Company owned and was leasing two office buildings, three office/warehouse
facilities, two retail centers, and two senior citizen rental communities.
During the year ended October 31, 1996 investment property revenues included a
$1.9 million pretax gain from the sale of a retail center. Investment
properties expenses do not include interest expense (see "Interest" below).

Collateralized Mortgage Financing

In the years prior to February 29, 1988 the Company pledged mortgage loans
originated by its mortgage banking subsidiaries against collateralized mortgage
obligations ("CMO's"). Subsequently the Company discontinued its CMO program.
As a result, CMO operations are diminishing as pledged loans are decreasing
through principal amortization and loan payoffs, and related bonds are reduced.
In recent years, as a result of bonds becoming callable, the Company has also
sold a portion of its CMO pledged mortgages.

Corporate General and Administrative

Corporate general and administration expenses includes the operations at
the Company's headquarters in Red Bank, New Jersey. As a percentage of total
revenues such expenses were 1.7%, 1.7%, 2.6%, and 1.8% for the years ended
October 31, 1996 and 1995, the eight months ended October 31, 1994, and the year
ended February 28, 1994, respectively. Such expenses include the Company's long
term improvement initiatives of total quality, process redesign (net of
capitalized expenses), and training. Such initiatives resulted in additional
expenses for the years ended October 31, 1996 and 1995 and the eight months
ended October 31, 1994 amounting to $1.6 million, $2.0 million, and $1.3
million, respectively. For the year ended October 31, 1996 such expenses also
included a one-time insurance adjustment and increased depreciation on recently
acquired computer equipment for all Company locations.

Interest

Interest expense includes housing, land and lot, and rental properties
interest. Interest expense is broken down as follows:

Eight
Year Ended Months Year
-------------------- Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
--------- --------- --------- ---------
(In Thousands)

Sale of homes............... $ 25,992 $ 24,706 $ 11,355 $ 17,424
Land and lot sales.......... 657 735 763 198
Rental properties........... 5,508 5,303 3,195 4,908
--------- --------- --------- ---------
Total....................... $ 32,157 $ 30,744 $ 15,313 $ 22,530
========= ========= ========= =========

Housing interest as a percentage of sale of home revenues amounted to 3.4%,
3.3%, 3.1%, and 3.1% for the years ended October 31, 1996 and 1995, the eight
months ended October 31, 1994, and the year ended February 28, 1994,
respectively.

Other Operations

Other operations consisted primarily of miscellaneous residential housing
operations, amortization of prepaid subordinated note issuance expenses,
corporate owned life insurance loan interest, and California housing management
operations (see "Land Sales and Other Revenues" above). During the year ended
October 31, 1995 and the eight months ended October 31, 1994 other expenses
included California housing management expenses and amortization of purchased
management contracts amounting to $1.2 million and $2.5 million, respectively.
The year ended October 31, 1995 also included the cost of organizational
restructuring in the Northeast Region and California amounting to $1.3 million.
The eight months ended October 31, 1994 also included the writeoff of a $1.0
million receivable resulting from the reversal of a legal judgment, and $0.4
million loss from the sale of a 49% interest in a condominium management
company.

Total Taxes

Total taxes as a percentage of income before income taxes amounted to 30.9%
and 34.8% for the years ended October 31, 1996 and 1995, respectively. Total
net tax benefits as a percentage of the loss before income taxes amounted to
32.7% for the eight months ended October 31, 1994. Total taxes as a percentage
of income before income taxes amounted to 31.7% for the year ended February 28,
1994. Deferred federal and state income tax assets primarily represents the
deferred tax benefits arising from temporary differences between book and tax
income which will be recognized in future years. (See "Notes to Consolidated
Financial Statements - Note 9" for an additional explanation of taxes.)

Extraordinary Loss

In July 1993, the Company redeemed all of its outstanding 12 1/4%
Subordinated Notes due 1998 at a price of 102% of par. The principal amount
redeemed was $50,000,000 and the redemption resulted in an extraordinary loss of
$1,277,000 net of income taxes of $658,000.

Inflation

Inflation has a long-term effect on the Company because increasing costs of
land, materials and labor result in increasing sales prices of its homes. In
general, these price increases have been commensurate with the general rate of
inflation in the Company's housing markets and have not had a significant
adverse effect on the sale of the Company's homes. A significant inflationary
risk faced by the housing industry generally is that rising housing costs,
including land and interest costs, will substantially outpace increases in the
income of potential purchasers. In recent years, in the price ranges in which
it sells homes, the Company has not found this risk to be a significant problem.

Inflation has a lesser short-term effect on the Company because the Company
generally negotiates fixed price contracts with its subcontractors and material
suppliers for the construction of its homes. These prices usually are
applicable for a specified number of residential buildings or for a time period
of between four to twelve months. Construction costs for residential buildings
represent approximately 50% of the Company's total costs and expenses.

Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements of Hovnanian Enterprises, Inc. and its consolidated
subsidiaries are set forth herein beginning on Page F-1.

Item 9 - CHANGES IN OR DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.

During the years ended October 31, 1996 and 1995, the eight months ended
October 31, 1994, and the year ended February 28, 1994 there have not been any
changes in or disagreements with accountants on accounting and financial
disclosure.

PART III

Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information called for by Item l0, except as set forth below under the
heading "Executive Officers of the Registrant", is incorporated herein by
reference to the Company's definitive proxy statement to be filed pursuant to
Regulation l4A, in connection with the Company's annual meeting of shareholders
to be held in April 1997, which will involve the election of directors.

Executive Officers of the Registrant

The executive officers of the Company are listed below and brief summaries
of their business experience and certain other information with respect to them
are set forth following the table. Each executive officer holds such office for
a one year term.

Year Started
Name Age Position With Company

Kevork S. Hovnanian 73 Chairman of the Board, Chief l967
Executive Officer, and Director
of the Company.

Ara K. Hovnanian 39 President and Director of l979
the Company.

Paul W. Buchanan 46 Senior Vice President-Corporate l981
Controller and Director of the
Company.

Timothy P. Mason 56 Senior Vice President-Adminis- 1975
tration/Secretary and Director
of the Company.

Peter S. Reinhart 46 Senior Vice President and General 1978
Counsel and Director of the
Company.

John J. Schimpf 47 Executive Vice President and 1981
Director of the Company.

J. Larry Sorsby 41 Senior Vice President, Treasurer 1988
and Chief Financial Officer

Mr. K. Hovnanian founded the predecessor of the Company in l959 (Hovnanian
Brothers, Inc.) and has served as Chairman of the Board of the Company since its
incorporation in l967. Mr. K. Hovnanian was also President of the Company from
1967 to April 1988.

Mr. A. Hovnanian was appointed President in April 1988, after serving as
Executive Vice President from March 1983. Mr. A. Hovnanian was elected a
Director of the Company in December l98l. Mr. A. Hovnanian is the son of Mr. K.
Hovnanian.

Mr. Buchanan was appointed Senior Vice President-Corporate Controller in
May l990, after serving as Vice President-Corporate Controller from March 1983.
Mr. Buchanan was elected a Director of the Company in March l982.

Mr. Mason was appointed Senior Vice President of Administration/ Secretary
of the Company in March 1991, after serving as Vice President -
Administration/Treasurer and Secretary of the Company since March l982. Mr.
Mason was elected a Director of the Company in 1980.

Mr. Reinhart was appointed Senior Vice President and General Counsel in
April 1985 after serving as Vice President and Chief Legal Counsel since March
l983. Mr. Reinhart was elected a Director of the Company in December l98l.

Mr. Schimpf was appointed Executive Vice President of the Company in April
1988 after serving as Senior Vice President from April 1985. Mr. Schimpf was
elected a Director of the Company in June 1986.

Mr. Sorsby was appointed Senior Vice President, Treasurer and Chief
Financial Officer of the Company in February, 1996 after serving as Senior Vice
President-Finance/Treasurer of the Company since March 1991 and Vice
President/Finance since September l988.

Item 11 - EXECUTIVE COMPENSATION

The information called for by Item ll is incorporated herein by reference
to the Company's definitive proxy statement to be filed pursuant to Regulation
l4A, in connection with the Company's annual meeting of shareholders to be held
in April 1997, which will involve the election of directors.

Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by Item l2 is incorporated herein by reference
to the Company's definitive proxy statement to be filed pursuant to Regulation
l4A, in connection with the Company's annual meeting of shareholders to be held
in April l997, which will involve the election of directors.

Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by Item l3 is incorporated herein by reference
to the Company's definitive proxy statement to be filed pursuant to Regulation
l4A, in connection with the Company's annual meeting of shareholders to be held
in April 1997, which will involve the election of directors.

PART IV

Item 14 - EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K

Page

Financial Statements:

Index to Consolidated Financial Statements....................... F-1
Independent Auditors' Report..................................... F-2
Consolidated Balance Sheets at October 31, 1994 and 1995......... F-3
Consolidated Statements of Income for the years ended
October 31, 1995 and 1994 (unaudited), the eight months
ended October 31, 1994 and the years ended February 28,
1994 and 1993................................................. F-5
Consolidated Statements of Stockholders' Equity for the year
ended October 31, 1995, the eight months ended October 31,
1994 and the years ended February 28, 1994 and 1993........... F-6
Consolidated Statements of Cash Flows for the year ended
October 31, 1995, the eight months ended October 31, 1994
and the years ended February 28, 1994 and 1993................ F-7
Notes to Consolidated Financial Statements......................... F-8

Financial Statement Schedules:

VIII Valuation and Qualifying Accounts.......................... F-21
X Supplementary Income Statement Information................. F-22
XI Real Estate and Accumulated Depreciation................... F-23

All other schedules are either not applicable to the Company or have been
omitted because the required information is included in the financial statements
or notes thereto.
Exhibits:

3(a) Certificate of Incorporation of the Registrant.(1)
3(b) Certificate of Amendment of Certificate of Incorporation of the
Registrant.(8)
3(c) Bylaws of the Registrant.(8)
4(a) Specimen Class A Common Stock Certificate.(8)
4(b) Specimen Class B Common Stock Certificate.(8)
4(c) Indenture dated as of April 29, 1992, relating to 11 1/4%
Subordinated Notes between the Registrant and First Fidelity Bank,
including form of 11 1/4% Subordinated Notes due April 15,
2002.(2)
4(d) Indenture dated as of May 28, 1993, relating to 9 3/4%
Subordinated Notes between Registrant and First Fidelity Bank,
National Association, New Jersey, as Trustee, including form of
9 3/4% Subordinated Note due 2005.(4)
10(a) Credit Agreement dated July 30, 1993 among K. Hovnanian
Enterprises, Inc., Hovnanian Enterprises, Inc., certain
Subsidiaries Thereof, Midlantic National Bank, Chemical
Bank, United Jersey Bank/Central, N.A., and NBD Bank, N.A.(7)
10(b) Amendment to Credit Agreement among K. Hovnanian Enterprises,
Inc., Hovnanian Enterprises, Inc., Certain Subsidiaries Thereof,
Midlantic National Bank, Chemical Bank, United Jersey Bank, NBD
Bank, N.A., PNC Bank, National Association, Meridian Bank, Nations
Bank of Virginia, N.A., First National Bank of Boston, and
Continental Bank.(10)
10(c) Second Amendment to Credit Agreement dated April 28, 1995 among
K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc.,
Certain Subsidiaries Thereof, Midlantic Bank,N.A., Chemical Bank,
United Jersey Bank, NBD Bank, PNC Bank, National Association,
Meridian Bank, Nations Bank, National Association, First National
Bank of Boston, Bank of America Illinois, and Bank of America
National Trust and Savings Association.(11)
10(d) Third Amendment to Credit Agreement dated June 4, 1996 among
K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc.,
Certain Subsidiaries Thereof, Midlantic Bank,N.A., Chemical Bank,
Meridian Bank, NationsBank,N.A., First National Bank of Boston,
Bank of America Illinois, First National Bank of Chicago, Comerica
Bank, and Credit Lyonnais.(12)
10(e) Description of Management Bonus Arrangements.(8)
10(f) Description of Savings and Investment Retirement Plan.(1)
10(g) Stock Option Plan.(6)
10(h) Management Agreement dated August 12, 1983 for the management of
properties by K. Hovnanian Investment Properties, Inc.(1)
10(i) Agreement dated July 8, 1981 between Hovnanian Properties of
Atlantic County, Inc. and Kevork S. Hovnanian.(2)
10(j) Management Agreement dated December 15, 1985, for the management
of properties by K. Hovnanian Investment Properties, Inc.(3)
10(k) Description of Deferred Compensation Plan.(5)
22 Subsidiaries of the Registrant.
27 Financial Data Schedules
(1) Incorporated by reference to Exhibits to Registration
Statement (No. 2-85198) on Form S-1 of the Registrant.
(2) Incorporated by reference to Exhibits to Registration Statement
(No. 33-46064) on Form S-3 of the Registrant.
(3) Incorporated by reference to Exhibits to Annual Report on Form 10
-K for the year ended February 28, 1986 of the Registrant.
(4) Incorporated by reference to Exhibits to Registration Statement
(No. 33-61778) on Form S-3 of the Registrant.
(5) Incorporated by reference to Exhibits to Annual Report on Form
10-K for the year ended February 28, 1990 of the Registrant.
(6) Incorporated by reference to the Proxy Statement dated June 15,
1990.
(7) Incorporated by reference to an Exhibit to Quarterly Report on
Form 10-Q for the quarter ended August 31, 1993, of the Registrant.
(8) Incorporated by reference to Exhibits to Annual Report on Form 10-
K for the year ended February 28, 1994 of the Registrant.
(9) Incorporated by reference to an Exhibit to Quarterly Report on
Form 10-Q for the quarter ended August 31, 1994, of the
Registrant.
(10) Incorporated by reference to Exhibits to Annual Report on Form
10-K for the eight months ended October 31, 1994 of the
Registrant.
(11) Incorporated by referenct to Exhibits to Annual Report on Form
10K for the year ended October 31, 1995 for the Registrant.
(12) Incorporated by reference to Exhibits to Quarterly Report on
Form 10Q for the quarter ended April 30, 1996 of the
Registrant.

Reports on Form 8-K

The Company did not file any reports on Form 8-K during the quarter ended
October 31, 1996.

SIGNATURES

Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of l934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Hovnanian Enterprises, Inc.
By:

/S/KEVORK S HOVNANIAN
Kevork S. Hovnanian
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of l934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated

/S/KEVORK S. HOVNANIAN Chairman of The Board, 1/17/97
Kevork S. Hovnanian Chief Executive Officer
and Director

/S/ARA K. HOVNANIAN President and Director 1/17/96
Ara K. Hovnanian

/S/PAUL W. BUCHANAN Senior Vice President 1/17/97
Paul W. Buchanan Corporate Controller and
Director

/S/TIMOTHY P. MASON Senior Vice President- 1/17/97
Timothy P. Mason Administration/Secretary
and Director

/S/PETER S. REINHART Senior Vice President and 1/17/97
Peter S. Reinhart General Counsel and Director

/S/JOHN J. SCHIMPF Executive Vice President 1/17/97
John J. Schimpf and Director

/S/J. LARRY SORSBY Senior Vice President, 1/17/97
J. Larry Sorsby Treasurer, and Chief
Financial Officer

HOVNANIAN ENTERPRISES, INC.

Index to Consolidated Financial Statements

Page
Financial Statements:

Independent Auditors' Report................................... F-2

Consolidated Balance Sheets as of October 31, 1995 and 1994.... F-3

Consolidated Statements of Income for the Years Ended October 31,
1996, 1995 and 1994 (unaudited), the Eight Months Ended
October 31, 1994 and the Year Ended February 28, 1994.......... F-5

Consolidated Statements of Stockholders' Equity for the Years
Ended October 31, 1996 and 1995, the Eight Months Ended
October 31, 1994, and the Year Ended February 28, 1994......... F-6

Consolidated Statements of Cash Flows for the Years Ended
October 31, 1996 and 1995, the Eight Months Ended October 31,
1994, and the Year Ended February 28, 1994..................... F-7

Notes to Consolidated Financial Statements........................ F-8

Financial Statement Schedules:

VIII Valuation and Qualifying Accounts......................... F-21

X Supplementary Income Statement Information................ F-22

XI Real Estate and Accumulated Depreciation.................. F-23

All other schedules have been omitted because the required information of such
other schedules is not present, is not present in amounts sufficient to require
submission of the schedule or because the required information is included in
the financial statements and notes thereto.

INDEPENDENT AUDITORS' REPORT

To the Stockholders and
Board of Directors of
Hovnanian Enterprises, Inc.

We have audited the accompanying consolidated balance sheets of Hovnanian
Enterprises, Inc. and subsidiaries as of October 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years ended October 31, 1996 and 1995, the eight-month period ended
October 31, 1994 and for the year ended February 28, 1994. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hovnanian Enterprises, Inc. and subsidiaries at October 31, 1996 and 1995 and
the consolidated results of their operations and cash flows for the years ended
October 31, 1996 and 1995, the eight-month period ended October 31, 1994 and for
the year ended February 28, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, the related fiancial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.

/S/ Ernst & Young LLP

New York, New York
December 20, 1996

<TABLE>

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)

<CAPTION>
October 31, October 31,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Homebuilding:
Cash and cash equivalents(Note 4)................. $ 16,535 $ 13,758
------------ ------------
Inventories - At cost, not in excess of fair
value (Notes 6 and 10):
Sold and unsold homes and lots under
development.................................... 314,630 345,410
Land and land options held for future
development or sale........................... 61,677 59,003
------------ ------------
Total Inventories............................. 376,307 404,413
------------ ------------

Receivables, deposits, and notes (Notes 5 and 11). 26,442 27,589
------------ ------------

Property, plant, and equipment - net (Note 3)..... 18,251 14,456
------------ ------------

Prepaid expenses and other assets................. 31,939 26,414
------------ ------------
Total Homebuilding............................ 469,474 486,630
------------ ------------

Financial Services:
Cash.............................................. 4,196 1,695
Mortgage loans held for sale (Note 5)............. 57,812 46,621
Other assets...................................... 3,217 2,329
------------ ------------
Total Financial Services...................... 65,225 50,645
------------ ------------

Investment Properties:
Rental property - net (Note 3).................... 51,892 63,310
Property under development or held for future
development..................................... 13,502 11,368
Investment in and advances to unconsolidated
joint venture................................... 186 3,804
Other assets...................................... 3,106 3,795
------------ ------------
Total Investment Properties................... 68,686 82,277
------------ ------------

Collateralized Mortgage Financing:
Collateral for bonds payable (Note 5)............. 9,478 18,184
Other assets...................................... 576 1,281
------------ ------------
Total Collateralized Mortgage Financing....... 10,054 19,465
------------ ------------
Income Taxes Receivable - Including deferred tax
benefits (Note 9)................................. 672 6,361
------------ ------------
Total Assets........................................ $614,111 $645,378
============ ============

See notes to consolidated financial statements.
</TABLE>

<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)

October 31, October 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------ ------------
<S> <C> <C>
Homebuilding:
Nonrecourse land mortgages (Note 6)............... $ 25,151 $ 25,046
Accounts payable and other liabilities............ 45,146 48,188
Customers' deposits (Note 4)...................... 12,371 11,624
Nonrecourse mortgages secured by operating
properties (Note 5)............................. 3,918 4,003
------------ ------------
Total Homebuilding............................ 86,586 88,861
------------ ------------
Financial Services:
Accounts payable and other liabilities............ 1,631 1,476
Mortgage warehouse line of credit (Note 5)........ 55,196 41,855
------------ ------------
Total Financial Services...................... 56,827 43,331
------------ ------------
Investment Properties:
Accounts payable and other liabilities............ 721 1,105
Nonrecourse mortgages secured by rental property
(Note 6)......................................... 31,071 31,490
------------ ------------
Total Investment Properties................... 31,792 32,595
------------ ------------
Collateralized Mortgage Financing:
Accounts payable and other liabilities............ 11 14
Bonds collateralized by mortgages receivable
(Note 5)......................................... 9,231 17,880
------------ ------------
Total Collateralized Mortgage Financing....... 9,242 17,894
------------ ------------
Notes Payable:
Revolving credit agreement (Note 6)............... 30,000 80,650
Subordinated notes (Note 7)....................... 200,000 200,000
Accrued interest.................................. 6,042 5,712
------------ ------------
Total Notes Payable........................... 236,042 286,362
------------ ------------
Total Liabilities............................. 420,489 469,043
------------ ------------
Commitments and Contingent Liabilities
(Notes 4 and 13)

Stockholders' Equity (Notes 11 and 12):
Preferred Stock,$.01 par value-authorized 100,000
shares; none issued
Common Stock,Class A,$.01 par value-authorized
87,000,000 shares; issued 15,481,222 shares
(including 345,874 shares held in Treasury)...... 155 154
Common Stock,Class B,$.01 par value-authorized
13,000,000 shares; issued 8,247,579 shares
(including 345,874 shares held in Treasury)..... 82 83
Paid in Capital................................... 33,935 33,935
Retained Earnings (Note 7)........................ 164,749 147,462
Treasury Stock - at cost.......................... (5,299) (5,299)
------------ ------------
Total Stockholders' Equity.................... 193,622 176,335
------------ ------------
Total Liabilities and Stockholders' Equity.......... $614,111 $645,378
============ ============

See notes to consolidated financial statements.
</TABLE>

<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)

<CAPTION>
Eight
Year Ended Months Year
-------------------- Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Homebuilding:
Sale of homes............................. $764,682 $740,481 $366,322 $557,489
Land sales and other revenues............. 18,612 15,398 5,954 8,401
--------- --------- --------- ---------
Total Homebuilding...................... 783,294 755,879 372,276 565,890
Financial Services.......................... 11,216 10,348 5,886 8,458
Investment Properties....................... 10,919 9,531 6,396 9,024
Collateralized Mortgage Financing........... 2,035 1,987 2,027 3,638
--------- --------- --------- ---------
Total Revenues.......................... 807,464 777,745 386,585 587,010
--------- --------- --------- ---------
Expenses:
Homebuilding:
Cost of sales............................. 651,492 624,395 315,637 460,073
Selling, general and administrative....... 60,704 59,914 34,355 42,020
Provision to reduce inventory to
estimated net realizable value(Note 10). 6,357
Inventory impairment loss (Note 10)....... 1,608 2,780
--------- --------- --------- ---------
Total Homebuilding...................... 713,804 687,089 356,349 502,093
Financial Services.......................... 10,669 11,571 6,995 7,542
Investment Properties....................... 6,388 6,135 5,206 5,797
Collateralized Mortgage Financing........... 2,076 2,173 2,379 4,284
Corporate General and Administration(Note 2) 14,002 13,002 10,133 10,678
Interest.................................... 32,157 30,744 15,313 22,530
Other operations............................ 3,362 5,377 5,715 3,052
Provision for loan writedown (Note 11)...... 1,883
--------- --------- --------- ---------
Total Expenses.......................... 782,458 756,091 402,090 557,859
--------- --------- --------- ---------
Income(Loss) Before Income Taxes and
Extraordinary Loss.......................... 25,006 21,654 (15,505) 29,151
--------- --------- --------- ---------
State and Federal Income Taxes:
State (Note 9).............................. 1,336 2,306 1,118 903
Federal (Note 9)............................ 6,383 5,220 (6,193) 8,326
--------- --------- --------- ---------
Total Taxes............................... 7,719 7,526 (5,075) 9,229
--------- --------- --------- ---------
17,287 14,128 (10,430) 19,922
Extraordinary Loss from Extinguishment of Debt,
Net of Income Taxes (Note 7)................ (1,277)
--------- --------- --------- ---------
Net Income (Loss)............................. $ 17,287 $ 14,128 $(10,430) $ 18,645
========= ========= ========= =========
Earnings Per Common Share (Note 1):
Income (loss) before extraordinary loss and
cumulative effect of change in accounting. $0.75 $0.61 ($0.46) $ 0.87
Extraordinary loss.......................... (0.05)
--------- --------- --------- ---------
Net Income (Loss)............................. $0.75 $0.61 ($0.46) $ 0.82
========= ========= ========= =========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<CAPTION>
A Common Stock B Common Stock
------------------- -------------------
Shares Shares
Issued and Issued and Paid-In Retained Treasury
Outstanding Amount Outstanding Amount Capital Earnings Stock Total
----------- ------ ----------- ------ ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1993 13,320,754 $137 9,462,793 $98 $31,882 $125,119 ($5,299) $151,937

Sale of common stock under
employee stock option plan 29,250 29,250 419 419
Conversion of Class B to
Class A common stock...... 1,011,587 10 (1,011,581) (10)
Net Income.................. 18,645 18,645
----------- ------ ----------- ------ ------- -------- --------- --------
Balance, February 28, 1994.. 14,361,591 147 8,480,462 88 32,301 143,764 (5,299) 171,001

Issuance of Class A Common
Stock..................... 180,000 2 1,557 1,559
Conversion of Class B to
Class A common stock...... 188,708 (188,708)
Net Loss.................... (10,430) (10,430)
----------- ------ ----------- ------ ------- -------- --------- ---------
Balance, October 31, 1994... 14,730,299 149 8,291,754 88 33,858 133,334 (5,299) 162,130

Sale of common stock under
employee stock option plan 15,000 77 77
Conversion of Class B to
Class A common stock...... 293,184 5 (293,184) (5)
Net Income.................. 14,128 14,128
----------- ------ ----------- ------ ------- -------- --------- ---------
Balance, October 31, 1995... 15,038,483 154 7,998,570 83 33,935 147,462 (5,299) 176,335

Conversion of Class B to
Class A common stock...... 96,865 1 (96,865) (1)
Net Income.................. 17,287 17,287
----------- ------ ----------- ------ ------- -------- --------- ---------
Balance, October 31, 1996... 15,135,348 $155 7,901,705 $82 $33,935 $164,749 ($5,299) $193,622
=========== ====== =========== ====== ======= ======== ========= =========

See notes to consolidated financial statements.
</TABLE>
<TABLE>

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands

Eight
Months Year
Year Ended Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
---------- --------- -------- ----------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss)............................ $ 17,287 $ 14,128 $(10,430) $ 18,645
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation............................. 5,246 4,095 2,508 3,035
Loss (gain)on sale and retirement of
property and assets.................... (1,998) 875 623 244
Writedown of loan from sale of subsidiary 1,883
Deferred income taxes.................... (820) 1,786 (960) (1,573)
Loss from unconsolidated affiliates...... 8
Provision to reduce inventory to
estimated net realizable value......... 6,357
Inventory impairment loss................ 1,608 2,780
Decrease (increase) in assets:
Escrow cash............................ (2,129) (654) 1,986 1,811
Receivables, prepaids and other assets. (4,297) (2,929) 4,530 (6,006)
Mortgage notes receivable.............. (10,966) (21,432) 20,362 (22,043)
Inventories............................ 26,498 (20,653) (113,745) (35,347)
Increase (decrease) in liabilities:
State and Federal income taxes......... 6,509 4,536 (14,661) 6,140
Customers' deposits.................... 774 (470) 455 3,974
Interest and other accrued liabilities. (3,366) 4,873 (6,701) (3,308)
Post development completion costs...... 4,062 (3,557) (1,041) 3,166
Accounts payable....................... (3,681) 4,472 3,016 7,289
Amortization of debenture discounts.... 3
Net cash provided (used in) by ---------- ---------- ---------- ----------
operating activities................. 34,727 (12,150) (107,701) (22,079)
Cash Flows From Investing Activities: ---------- ---------- ---------- ----------
Net proceeds from sale of property and assets 10,308 1,046 5,292 2,114
Investment in property and assets............ (5,882) (8,106) (9,850) (4,594)
Investment in and advances to unconsolidated
affiliates................................. 3,792 200 (298) 204
Investment in income producing properties.... (2,134) (4,858) 4,133 (16,597)
Investment in loans from sale of subsidiaries 50
Net cash provided (used in) by ---------- ---------- ---------- ----------
investing activities................. 6,084 (11,718) (723) (18,823)
Cash Flows From Financing Activities: ---------- ---------- ---------- ----------
Proceeds from mortgages and notes............ 1,142,106 944,284 473,621 552,640
Proceeds from subordinated debt.............. 100,000
Principal payments on mortgages and notes.. (1,188,449) (931,254) (384,218) (557,531)
Principal payments on subordinated debt...... (52,160)
Investment in mortgage notes receivable...... 8,941 8,138 10,284 10,597
Proceeds from sale of stock.................. 77 419
Net cash used (provided by) in ---------- ---------- ---------- ----------
financing activities................. (37,402) 21,245 99,687 53,965
---------- ---------- ---------- ----------
Net Increase (Decrease) In Cash................ 3,409 (2,623) (8,737) 13,063
Cash Balance, Beginning Of Period.............. 11,914 14,537 23,274 10,211
---------- ---------- ---------- ----------
Cash Balance, End Of Period.................... $ 15,323 $ 11,914 $ 14,537 $ 23,274
Supplemental Disclosures Of Cash Flow: ========== ========== ========== ==========
Cash paid during the year for:
Interest (net of amount capitalized)....... $ 32,194 $ 30,128 $ 17,380 $ 25,173
Income Taxes............................... 6,875 1,192 10,574 3,867
---------- ---------- ---------- ----------
$ 39,069 $ 31,320 $ 27,954 $ 29,040
See notes to consolidated financial statements ========== ========== ========== ==========
</TABLE>

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1996, OCTOBER 31, 1995, THE EIGHT
MONTHS ENDED OCTOBER 31, 1994 AND THE YEAR ENDED FEBRUARY 28, 1994.

1. SUMMARY OF ACCOUNTING POLICIES

Year End Change - On May 10, 1994, the Board of Directors of the Company
adopted a resolution providing that the date for the end of the fiscal year of
the Company be changed from the last day of February to October 31. The report
covering the three month periods ended May 31, 1994 and August 31, 1994 were
filed on Form 10-Q. The report covering the eight month transition period of
March 1 through October 31, 1994 was included in the 1994 Form 10-K.
Thereafter, the Company has filed reports as of January 31, April 30, July 31,
and October 31.

Operations - The Company, a Delaware Corporation, principally develops
housing communities in New Jersey, Pennsylvania, Florida, North Carolina,
Virginia, and California. In addition, the Company has recently started
building in Poland. The Company also develops and operates income producing
properties.

Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and all wholly-owned or majority
owned subsidiaries after elimination of all significant intercompany balances
and transactions. The Company's investments in joint ventures in which the
Company's interest is 50% or less are accounted for by the equity method of
accounting.

Reclassification - Certain expenses which had been previously reported as
selling, general and administration were reclassified to cost of sales. These
costs include sales commissions, buyer concessions, the amortization of prepaid
selling expenses, property taxes and condominium association subsidies. In
addition, the assets and liabilities, as well as the revenues and expenses of
the Company's Title Division have been reclassified out of Homebuilding and into
the Financial Services section of the consolidated balance sheets and
consolidated statements of income.

Organizational Restructuring - During the fiscal years ended October 31,
1996 and October 31, 1995, the Company recorded a $0.3 million and $1.3 million
charge, respectively, for the cost of consolidating operations, writing off of
certain assets, and associate severance payments. The charges for these fiscal
years were associated with consolidating certain common functions in the New
Jersey, Pennsylvania, Florida, and California building divisions. This
consolidation effort is designed to reduce redundant costs and improve the
Company's operating efficiency in these regions.

Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
and these differences could have a significant impact on the financial
statements.

New Accounting Pronouncement - The Company has adopted FASB Statement No.
121("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and For
Long-Lived Assets to be Disposed." Details of this change in accounting are
disclosed in Note 10.

Income Recognition - Income from sales is recorded when title is conveyed
to the buyer, subject to the buyer's financial commitment being sufficient to
provide economic substance to the transaction.

Cash - Cash includes cash deposited in checking accounts, overnight
repurchase agreements, certificates of deposit, Treasury bills and government
money market funds.

Fair Value of Financial Instruments - The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques as appropriate. The Company's financial instruments
consist of cash equivalents, mortgages and notes receivable, mortgages and notes
payable, and the subordinated notes payable. Unless otherwise disclosed, the
fair value of financial instruments approximates their recorded values.

Inventories - For inventories of communities under development, a loss is
recorded when events and circumstances indicate impairment and the undiscounted
future cash flows generated are less than the related carrying amounts. The
impairment loss is based on expected revenue, cost to complete including
interest, and selling costs. Inventories and long-lived assets held for sale
are recorded at the lower of cost or fair value less selling costs. Fair value
is defined in FAS 121 as the amount at which an asset could be bought or sold in
a current transaction between willing parties, that is, other than in a forced
or liquidation sale. Construction costs are accumulated during the period of
construction and charged to cost of sales under specific identification methods.
Land, land development, and common facility costs are amortized based upon the
number of homes to be constructed in each housing community utilizing a relative
sales value allocation method.

Interest costs related to properties in progress are capitalized during the
construction period and expensed along with the associated cost of sales as the
related inventories are sold (see Note 6).

The cost of land options is capitalized when incurred and either included
as part of the purchase price when the land is acquired or charged to operations
when the Company determines it will not exercise the option.

Property - Rental operations of the Company arise primarily from rental of
commercial properties. In addition, the Company has from time to time rented
under short-term leases condominium homes, not yet under contract of sale. Such
homes are reclassified from inventory and depreciated after a reasonable selling
period not to exceed one year.

Post Development Completion Costs - In those instances where a development
is substantially completed and sold and the Company has additional construction
work to be incurred, an estimated liability is provided to cover the cost of
such work.

Deferred Income Tax - Deferred income taxes or income tax benefits are
provided for temporary differences between amounts recorded for financial
reporting and for income tax purposes.

Common Stock - Each share of Class A Common Stock entitles its holder to
one vote per share and each share of Class B Common Stock entitles its holder to
ten votes per share. The amount of any regular cash dividend payable on a share
of Class A Common Stock will be an amount equal to 110% of the corresponding
regular cash dividend payable on a share of Class B Common Stock. If a
shareholder desires to sell shares of Class B Common Stock, such stock must be
converted into shares of Class A Common Stock.

On December 16, 1996, the Company's Board of Directors approved a stock
repurchase plan of up to 2 million shares, equal to 8.7% of the Company's total
and outstanding shares as of October 31, 1996.

Depreciation - The straight-line method is used for both financial and tax
reporting purposes for all assets except office furniture and equipment which
are depreciated using the declining balance method over their estimated useful
lives.

Prepaid Expenses - Prepaid expenses which relate to specific housing
communities are amortized to costs of sales as the applicable inventories are
sold.

Per Share Calculations - Per share amounts are calculated on a weighted
average basis.

2. CORPORATE INITIATIVES

The Company has embarked on long term improvement initiatives of total
quality, process redesign, and training. Included in Corporate General and
Administration is $1,601,000 and $1,987,000 for the years ended October 31, 1996
and 1995, respectively.

3. PROPERTY

Homebuilding property, plant, and equipment consists of land, land
improvements, buildings, building improvements, furniture and equipment used by
the Company and its subsidiaries to conduct day to day business. Homebuilding
accumulated depreciation related to these assets at October 31, 1996 and October
31, 1995 amounted to $14,970,000 and $12,408,000, respectively. Rental property
consists of two office buildings, three office warehouse facilities, two retail
shopping centers, and two senior citizen rental communities in New Jersey.
Accumulated depreciation on rental property at October 31, 1996 and October 31,
1995 amounted to $11,108,000 and $9,440,000, respectively. In January of 1996,
the Company sold a retail center with a book value of $8,022,000 and recorded a
gain of $1,998,000.

4. ESCROW CASH

The Company holds escrow cash amounting to $5,840,000 and $3,711,000 at
October 31, 1996 and October 31, 1995, respectively, which primarily represents
customers' deposits which are restricted from use by the Company. The Company
is able to release escrow cash by pledging letters of credit. At October 31,
1996 and October 31, 1995, $5,163,000 and $5,885,000 was released from escrow
and letters of credit were pledged, respectively. Escrow cash accounts are
substantially invested in short-term certificates of deposit or time deposits.

5. MORTGAGES AND NOTES RECEIVABLE

The Company's wholly-owned mortgage banking subsidiary originates mortgage
loans, primarily from the sale of the Company's homes. Such mortgage loans are
sold in the secondary mortgage market or prior to February 28, 1987 pledged
against collateralized mortgage obligations ("CMO's"). At October 31, 1996 and
October 31, 1995, respectively, $57,095,000 and $45,669,000 of such mortgages
were pledged against the Company's mortgage warehouse line (see "Notes to
Consolidated Financial Statements - Note 6"). The Company may incur risk with
respect to mortgages that are delinquent and not pledged against CMO's, but only
to the extent the losses are not covered by mortgage insurance or resale value
of the home. Historically, the Company has incurred minimal credit losses. The
mortgage loans held for sale are carried at the lower of cost or market value,
determined on an aggregate basis. There was no valuation adjustment at October
31, 1996.

6. MORTGAGES AND NOTES PAYABLE

Substantially all of the nonrecourse land mortgages are short-term
borrowings. Nonrecourse mortgages secured by operating and rental property are
installment obligations having annual principal maturities in the following
years ending October 31, of approximately $553,000 in 1997, $3,360,000 in 1998,
$607,000 in 1999, $21,479,000 in 2000, and $8,991,000 after 2000. The interest
rates on these obligations range from 8.125% to 10.5%.

The Company has an unsecured Revolving Credit Agreement ("Agreement") with
a group of banks which provides up to $245,000,000 through March 1999. Interest
is payable monthly and at various rates of either prime plus 1/4% or LIBOR plus
1.75%. In addition, the Company pays 1/2% per annum on the weighted average
unused portion of the line.

Interest costs incurred, expensed and capitalized were:

Eight
Year Ended Months Year
------------------ Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
-------- -------- -------- --------
(Dollars in Thousands)
Interest incurred (1):
Residential(3)................. $30,058 $32,257 $15,677 $20,830
Commercial(4).................. 5,493 5,571 3,289 5,138
------- ------- ------- -------
Total incurred................. $35,551 $37,828 $18,966 $25,968
======= ======= ======= =======

Interest expensed:
Residential(3)................. $26,649 $25,441 $12,118 $17,622
Commercial(4).................. 5,508 5,303 3,195 4,908
------- ------- ------- -------
Total expensed................. $32,157 $30,744 $15,313 $22,530
======= ======= ======= =======

Interest capitalized at
beginning of year.............. $36,182 $29,480 $26,443 $23,366
Plus: Interest incurred......... 35,551 37,828 18,966 25,968
Less: Interest expensed......... 32,157 30,744 15,313 22,530
Less: Charged to reserves....... 424 382 261 361
Less: Sale of assets............ - - 355 -
------- ------- ------- -------
Interest capitalized at
end of year.................... $39,152 $36,182 $29,480 $26,443
======= ======= ======= =======

Interest capitalized at
end of year (5),(6):
Residential(3)................. $32,669 $29,684 $23,507 $20,209
Commercial(2).................. 6,483 6,498 5,973 6,234
------- ------- ------- -------
Total interest
capitalized................... $39,152 $36,182 $29,480 $26,443
======= ======= ======= =======

(1) Data does not include interest incurred by the Company's mortgage and
finance subsidiaries.
(2) Data does not include a reduction for depreciation.
(3) Represents acquisition interest for construction, land and development
costs which is charged to interest expense when homes are delivered.
(4) Represents rental operation's interest charged to interest expense.
(5) Capitalized residential interest at February 28, 1994 includes $1,635,000
reported at February 28, 1993 as capitalized commercial interest. This
reclassification was the result of the transfer of two parcels of land
from commercial due to a change in the intended use to residential
housing.
(6) Capitalized commercial interest at October 31, 1995 includes $257,000
reported at October 31, 1994 as capitalized residential interest. This
reclassification was the result of a transfer of two senior citizen
rental communities to Investment Properties.

Average interest rates and average balances outstanding for short-term debt
are as follows:

October October October February
31, 1996 31, 1995 31, 1994 28, 1994
-------- -------- -------- --------
(Dollars In Thousands)

Average outstanding
borrowings................. $127,770 $160,029 $ 72,204 $ 39,632
Average interest rate during
period(1).................. 8.5% 8.7% 7.4% 5.4%
Average interest rate at end
of period(2)............... 7.6% 8.0% 9.9% --
Maximum outstanding at any
month end.................. $157,125 $187,050 $118,455 $ 72,700

(1) Total interest incurred for the eight months or year divided by average
outstanding short term borrowings.
(2) Average interest rate at end of period excludes the 1/2% charge on the
unused balance.

7. SUBORDINATED NOTES

On June 24, 1988, the Company issued $50,000,000 principal amount of 12
1/4% Subordinated Notes due June 15, 1998. In July 1993, the Company redeemed
all of these notes at a price of 102% of par. The redemption resulted in an
extraordinary loss of $1,277,000 net of an income tax benefit of $658,000.

On April 29, 1992, the Company issued $100,000,000 principal amount of 11
1/4% Subordinated Notes due April 15, 2002. Interest is payable semi-annually.
Annual sinking fund payments of $20,000,000 are required to commence April 15,
2000, and are calculated to retire 40% of the issue prior to maturity.

On June 7, 1993, the Company issued $100,000,000 principal amount of
9 3/4% Subordinated Notes due June 1, 2005. Interest is payable semiannually.
The notes are redeemable in whole or in part at the Company's option, initially
at 104.875% of their principal amount on or after June 1, 1999 and reducing to
100% of their principal amount on or after June 1, 2002.

The indentures relating to the subordinated notes and the Revolving Credit
Agreement contain restrictions on the payment of cash dividends. At October 31,
1996, $45,063,000 of retained earnings were free of such restrictions.

The fair value of the Subordinated Notes is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The combined fair value
of the Subordinated Notes is estimated at $190,250,000 as of October 31, 1996.

8. RETIREMENT PLAN

On December 1982, the Company established a defined contribution savings
and investment retirement plan. Under such plan there are no prior service
costs. All associates with over one year of service are eligible to participate
in the retirement plan and employer contributions are based on a percentage of
associate contributions. Plan costs charged to operations amount to $1,406,000
for the year ended October 31, 1996, $1,028,000 for the year ended October 31,
1995, $843,000 for the eight months ended October 31, 1994 and $788,000 for the
year ended February 28, 1994.

9. INCOME TAXES

Income Taxes payable (receivable) including deferred benefits, consists of
the following:

October October
31, 1996 31, 1995
--------- ---------
(In Thousands)

State income taxes:
Current.................................... $ 251 $ 1,345
Deferred................................... (1,337) (903)
Federal income taxes:
Current.................................... 6,601 (1,437)
Deferred................................... (6,187) (5,366)
--------- ---------
Total.................................... $ (672) $ (6,361)
========= =========

Deferred income taxes have been provided (reduced) due to temporary
differences as follows:

Eight
Year Ended Months Year
------------------ Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
-------- -------- -------- --------
(In Thousands)

Capitalized interest................$ (152) $ (2) $ (3) $ (3)
Homeowner association maintenance
reserves.......................... 275 (53) (46) 166
Installment sales................... (52) (59) (431) (493)
Provision to reduce inventory to
net realizable value.............. 1,710 1,665 (287) 1,324
Inventory impairment loss........... (563) (973)
Deferred expenses................... (1,312) 8 (54) (727)
Depreciation........................ 219 316 328 298
Post development completion costs... (1,198) 352 (127) (1,988)
Net operating losses................ 33 97 (129)
Other............................... (182) 65 (3) (21)
Low income housing tax credit....... 434 (434)
-------- -------- -------- --------
Benefit (Provision) - total.........$(1,255) $ 1,786 $ (960) $(1,573)
======== ======== ======== ========

The deferred tax liabilities or assets have been recognized in the
consolidated balance sheets due to temporary differences and loss carryforwards
as follows:

October October
31, 1996 31, 1995
-------- --------
(In Thousands)
Deferred Tax Liabilities:
Deferred interest............ $ 85 $ 247
Installment sales............ 242 294
Accelerated depreciation..... 2,137 1,749
-------- --------
Total...................... 2,464 2,290
-------- --------
Deferred Tax Assets:
Deferred income.............. 321 338
Maintenance guarantee reserves 313 589
Provision to reduce inventory to
net realizable value....... 1,600 2,199
Inventory impairment loss.... 563 973
Uniform capitalization of
overhead................... 3,055 1,911
Post development completion
costs........................ 2,972 1,763
Other........................ 1,164 786
-------- --------
Total...................... 9,988 8,559
-------- --------
Net Deferred Tax Assets........ $(7,524) $(6,269)
======== ========

The effective tax rates varied from the expected rate. The sources of
these differences were as follows:

Eight
Year Ended Months Year
------------------- Ended Ended
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
-------- -------- -------- --------

Computed "expected" tax rate...... 35.0% 35.0% (35.0%) 35.0%
State income taxes, net of Federal
income tax benefit.............. 3.2% 6.9% 4.7% 1.8%
Loss carryforward of New Fortis
subsidiary...................... -- -- -- (2.1%)
Company owned life insurance...... (2.9%) (4.4%) (3.7%) (2.0%)
Low income housing tax credit..... (5.3%) (4.2%) (2.8%) --
Other............................. .9% 1.5% 4.1% (1.0%)
-------- -------- -------- --------
Effective tax rate................ 30.9% 34.8% (32.7%) 31.7%
======== ======== ======== ========

The Company has state net operating loss carryforwards for financial
reporting and tax purposes of $280,000,000 due to expire between the years
October 31, 1997 and October 31, 2011.

10. REDUCTION OF INVENTORY TO FAIR VALUE

In accordance with FAS 121, the Company records impairment losses on
inventories related to communities under development when events and
circumstances indicate that they may be impaired and the undiscounted cashflows
estimated to be generated by those assets are less than their related carrying
amounts. As of October 31, 1996 and October 31, 1995, inventory with a carrying
amount of $2,240,000 and $10,701,000, respectively, was written down by
$1,289,000 and $4,142,000, respectively, to its fair value. This was based on
the Company's evaluation of the expected revenue, cost to complete including
interest and selling cost. The writedowns during the years ended October 31,
1996 and October 31, 1995 were primarily attributable to one community in New
York, one in New Jersey, two in Florida and four communities in Metro
Washington, D.C.

Also in accordance with FAS 121, the Company records impairment losses on
inventories and long lived assets held for sale when the related carrying amount
exceeds the fair value less the selling cost. As of October 31, 1996 and October
31, 1995, inventory with a carrying amount of $12,031,000 and $18,956,000,
respectively, was written down by $3,795,000 and $5,492,000, repectively, to
its fair value. The writedowns during the years ended October 31, 1996 and
October 31, 1995 were attributable to land held for sale in New Jersey,
Pennsylvania, Metro Washington, D.C. and Florida. During the year ended October
31, 1996, of the land parcels liquidated, the Company recovered the carrying
value or recognized insubstantial losses on the land held for sale.

The total aggregate impairment losses, which are presented in the consolidated
statements of income, on the inventory held for development and the land held
for sale were $1,608,000 and $2,780,000 for the years ended October 31, 1996
and October 31, 1995, respectively.

During the eight months ended October 31, 1994, the Company provided reserves
of $6.4 million to reduce certain residential properties to their estimated net
realizable values. The October 31, 1994 reserve was primarily attributable to
three communities, one each in New York , New Hampshire and Pennsylvania. As
of October 31, 1996, only lots in Pennsylvania remain. During the twelve months
ended October 31, 1995 and the eight months ended October 31, 1994 and the year
ended February 28, 1994, the Company charged $3,886,000, $5,209,000 and
$4,176,000, respectively, of costs relating to construction, operations,
selling, general and administration and interest, against reserves for losses
realized from the sales of certain homes and land parcels.

11. TRANSACTIONS WITH RELATED PARTIES

The Company's Board of Directors has adopted a general policy providing
that it will not make loans to officers or directors of the Company or their
relatives at an interest rate less than the interest rate at the date of the
loan on six month U.S. Treasury Bills, that the aggregate of such loans will not
exceed $2,000,000 at any one time, and that such loans will be made only with
the approval of the members of the Company's Board of Directors who have no
interest in the transaction. At October 31, 1996 and 1995 related party
receivables from officers and directors amounted to $1,908,000 and $1,954,000,
respectively. Notwithstanding the policy stated above, the Board of Directors
of the Company concluded that the following transactions were in the best
interests of the Company.

On March 1, 1990, the Company sold all the assets and liabilities of its
wholly-owned engineering subsidiary Najarian and Associates ("N & A") to the
employees of N & A for $3,600,000. One of these employees and former President
of N & A was Tavit O. Najarian, the son-in-law of Mr. K. Hovnanian, Chairman of
the Board and Director of the Company. The sale was approved by members of the
Company's Board of Directors who were not related to Mr. Najarian. At the
closing the Company received a cash payment of $720,000 and a $2,880,000 note.
Originally the note carried an annual interest rate of 10% and was to amortize
over ten years. As long as any portion of the note is outstanding, the Company
receives 25% of the net cash flow. During the year ended February 29, 1992, N &
A began to experience a significant decrease in business activity. As a result,
the note was modified by changing the interest rate to prime, add accrued
interest from September 1, 1991 to September 1, 1992 to principal and reschedule
principal payments over the balance of the term of the note. As a result of
continued financial difficulties, a committee consisting of independent
directors of the Board of Directors of the Company (the "Committee") engaged an
outside consultant to determine the fair market value of the above note. Based
on the consultant's findings, the Committee recommended a reduction in the note
including accrued interest from $2,983,000 to $1,100,000 at February 28, 1994.
This reduction of the note was charged to operations during the year ended
February 28, 1994. In addition, the Committee recommended a new term of ten
years with annual interest on the note of 5% for the first two years adjusting
to prime thereafter. Amortization would begin in year three with an annual
minimum amount of 5%, ranging up to 30% in year 10, or 85% of cash flow after
interest, whichever is greater. The Committee also recommended a $300,000
discount if the loan was paid in full during the first two years. During the
year ended October 31, 1996, the loan plus accrued interest was paid in full net
of the $300,000 prepayment discount which was charged to operations.

The Company provides property management services to various limited
partnerships including one partnership in which Mr. A. Hovnanian, President and
a Director of the Company, is a general partner, and members of his family and
certain officers and directors of the Company are limited partners. At October
31, 1996, no amounts were due the Company by these partnerships.

On May 10, 1994, the Board of Directors approved the acquisition of the 10%
minority interest in certain Florida subsidiaries owned by Paul W. Asfahl, then
President of the Company's Florida Division. For his 10% interest, the Company
issued 45,000 shares of Class A Common Stock to Mr. Asfahl.

On August 2, 1994, the Board of Directors approved the acquisition of the
15% minority interest in the New Fortis Corporation owned primarily by Marvin D.
Gentry, President of the New Fortis Corporation. For the 15% interest, the
Company issued 135,000 shares of Class A Common Stock to Mr. Gentry and the
other owners.

12. STOCK OPTION PLAN

The Company has a stock option plan for certain officers and key employees.
Options are granted by a Committee appointed by the Board of Directors. The
exercise price of all stock options must be at least equal to the fair market
value of the underlying shares on the date of the grant. Stock option
transactions are summarized as follows:

October October October February
31, 1996 31, 1995 31, 1994 28, 1994
--------- --------- -------- ---------

Options outstanding at beginning
of period................... 1,176,000 938,500 938,500 1,004,000
Granted.................... -- 270,000 -- --
Exercised.................. -- 15,000 -- 58,500
Cancelled.................. 20,000 17,500 -- 7,000
--------- --------- -------- ---------
Options outstanding at end
of period.................... 1,156,000 1,176,000 938,500 938,500
========= ========= ======== =========

Options exercisable at end of
period...................... 996,000 748,667 598,833 598,833
Price range of options -- $3.00-
exercised................... -- $5.13 -- $9.44

Price range of options $5.13- $5.13- $5.13- $5.13-
outstanding................. $11.50 $11.50 $11.50 $11.50

Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" establishes a fair value based method of accounting for
stock-based compensation plans, including stock options. The disclosure
requirements of this Statement shall be effective for financial statements for
fiscal years beginning after December 15, 1995. However, registrants may elect
to continue accounting for stock option plans under Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," but will
be required to provide proforma net income and earnings per share information
"as if" the new fair value approach had been adopted. Because the Company
intends to continue accounting for its stock option plan under APB 25, there
would have been no impact on the Company's financial statements resulting from
adoption.

13. COMMITMENTS AND CONTINGENT LIABILITIES

During fiscal 1989, the Company became aware that certain fire-retardant
plywood commonly used in the roof construction of multi-family homes may contain
a product defect causing accelerated deterioration of the plywood. The Company
has determined that such plywood was used principally in 33 of its communities
containing approximately 11,750 homes.

Common areas, including roofs, in each of the Company's multi-family
condominium developments are governed and controlled by homeowners' associations
for each development, rather than by individual homeowners. Certain of the 33
homeowners' associations in the affected developments have asserted claims
against the Company. As of October 31, 1994, the Company had entered separate
settlement agreements with 31 of the 33 associations, (the "Settling
Associations") covering 10,850 homes. In December 1994, the Company entered
into a settlement agreement with the two remaining associations on substantially
the same terms as the earlier settlements.

In August 1989 the Company brought suit against the plywood material
manufacturers, treaters, suppliers and others (the "Defendants") to determine
the proper responsibility for damages, to protect its interests and to recover
its damages.

In November 1992, the Company and the Settling Associations entered into a
settlement agreement with most of the Defendants. Based upon the settlement
monies received, the use of the Settling Associations' roof shingle reserves and
the actual expenditures in performing the repairs, the Company believes the
repair costs will not require it to set aside future reserves for such roof
repairs.

In addition, the Company is involved from time to time in litigation
arising in the ordinary course of business, none of which is expected to have a
material adverse effect on the Company.

As of October 31, 1996 and 1995, respectively, the Company is obligated
under various performance letters of credit amounting to $8,433,000 and
$7,397,000.

14. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION

Summarized quarterly financial information for the years ended October 31,
1996, October 31, 1995, the eight months ended October 31, 1994, and the year
ended February 28, 1994 is as follows:

Three Months Ended
-----------------------------------------
October July April January
31, 1996 31, 1996 30, 1996 31, 1996
-------- -------- -------- ---------
(In Thousands Except Per Share Data)

Revenues........................... $342,049 $195,812 $152,464 $117,139
Expenses........................... $323,474 $191,280 $150,881 $116,823
Income before income taxes......... $ 18,575 $ 4,532 $ 1,583 $ 316
State and Federal income tax....... $ 6,146 $ 1,422 $ 335 $ (184)
Net income......................... $ 12,429 $ 3,110 $ 1,248 $ 500
Earnings per common share.......... $ 0.54 $ 0.13 $ 0.06 $ 0.02
Weighted average number of
common shares outstanding........ 23,037 23,037 23,037 23,037

Three Months Ended
-----------------------------------------
October July April January
31, 1995 31, 1995 30, 1995 31, 1995
-------- -------- -------- ---------
(In Thousands Except Per Share Data)

Revenues........................... $331,712 $173,153 $147,284 $125,596
Expenses........................... $314,650 $170,082 $146,551 $124,808
Income before income taxes......... $ 17,062 $ 3,071 $ 733 $ 788
State and Federal income tax....... $ 6,432 $ 986 $ 54 $ 54
Net income......................... $ 10,630 $ 2,085 $ 679 $ 734
Earnings per common share.......... $ 0.46 $ 0.09 $ 0.03 $ 0.03
Weighted average number of
common shares outstanding........ 23,037 23,037 23,032 23,022

Two
Months Three Months Ended
Ended -----------------------
October 31, August 31, May 31,
1994 1994 1994
----------- ---------- ----------
(In Thousands Except Per Share Data)
Revenues........................... $149,215 $138,381 $ 98,989
Expenses........................... $157,333 $141,289 $103,468
Loss before income taxes........... $ (8,118) $ (2,908) $ (4,479)
State and Federal income tax....... $ (3,149) $ (426) $ (1,500)
Net loss........................... $ (4,969) $ (2,482) $ (2,979)
Loss per common share.............. $ (.22) $ (.11) $ (.13)
Weighted average number of
common shares outstanding........ 22,906 22,887 22,849

Three Months Ended
-----------------------------------------
February November August May
28, 1994 30, 1993 31, 1993 31, 1993
-------- -------- -------- ---------
(In Thousands Except Per Share Data)

Revenues........................... $257,691 $143,078 $123,291 $ 62,950
Expenses........................... $241,046 $136,157 $116,093 $ 64,563
Income (loss) before income taxes
and extraordinary loss........... $ 16,645 $ 6,921 $ 7,198 $ (1,613)
State and Federal income tax....... $ 5,277 $ 2,152 $ 2,426 $ (626)
Income (loss) before extraordinary
loss............................ $ 11,368 $ 4,769 $ 4,772 $ (987)
Extraordinary loss from
extinguishment of debt, net
of income taxes.................. $ (1,277)
Net income (loss).................. $ 11,368 $ 4,769 $ 4,772 $ (2,264)
Earnings (loss) per common share:
Income (loss) before
extraordinary loss............. $ .50 $ .21 $ .21 $ (.05)
Extraordinary loss............... $ (.05)
Net income (loss).................. $ .50 $ .21 $ .21 $ (.10)
Weighted average number of
common shares outstanding........ 22,842 22,839 22,818 22,784

<TABLE>

SCHEDULE VIII
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

<CAPTION>
BALANCE CHARGED TO CHARGED TO BALANCE
FEB. 28, COSTS AND DEDUCTIONS DESCRIP- OTHER DESCRIP- FEB 28,
DESCRIPTION 1993 EXPENSES TION ACCOUNTS TION 1994
- ------------------- ----------- ---------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Land and land
development costs $ 6,436,000 $3,164,000 Closings $2,091,000 Reclass $ 5,363,000
Land, land options
and costs of comm.
in planning 4,846,000 (2,091,000) Reclass 2,755,000
Rental property 2,387,000 1,012,000 Closings 1,375,000
Income producing
property under
development 98,000 98,000
----------- ---------- ---------- ---------- ----------
$13,767,000 $4,176,000 $0 $ 9,591,000
=========== ========== ========== ========== ===========

BALANCE CHARGED TO CHARGED TO BALANCE
FEB. 28, COSTS AND DEDUCTIONS DESCRIP- OTHER DESCRIP- OCT. 31,
DESCRIPTION 1994 EXPENSES TION ACCOUNTS TION 1994
- ------------------- ----------- ---------- ---------- --------- ---------- ---------- -----------

Land and land
development costs $ 5,363,000 $5,762,000 $3,370,000 Closings $ 7,755,000
Land, land options
and costs of comm.
in planning 2,755,000 1,123,000 Closings 1,632,000
Rental property 1,375,000 595,000 716,000 Closings 1,254,000
Income producing
property under
development 98,000 98,000
----------- ---------- ---------- ---------- -----------
$ 9,591,000 $6,357,000 $5,209,000 $10,739,000
=========== ========== ========== ========== ===========

BALANCE CHARGED TO CHARGED TO BALANCE
OCT. 31, COSTS AND DEDUCTIONS DESCRIP- OTHER DESCRIP- OCT. 31,
DESCRIPTION 1994 EXPENSES TION ACCOUNTS TION 1995
- ------------------- ----------- ----------- ---------- --------- ---------- ---------- -----------
Land and land
development costs $ 7,755,000 $2,796,000 Closings $4,959,000 FASB 121 $0
Land, land options
and costs of comm.
in planning 1,632,000 1,632,000 FASB 121 0
Rental property 1,254,000 1,089,000 Closings 165,000 FASB 121 0
Income producing
property under
development 98,000 98,000 FASB 121 0
----------- ----------- ---------- ---------- -----------
$10,739,000 $3,885,000 $6,854,000 $0
=========== =========== ========== ========== ===========

</TABLE>
<TABLE>
SCHEDULE X
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INCOME STATEMENT INFORMATION

<CAPTION>
Charged To Cost And Expenses
---------------------------------------------
October October October February
31, 1996 31, 1995 31, 1994 28, 1994
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Advertising.................... $11,513,000 $12,899,000 $ 6,368,000 $ 8,587,000
Depreciation................... $ 5,246,000 $ 4,095,000 $ 2,508,000 $ 3,035,000
Maintenance guarantee reserves. $ 682,000 $ 1,248,000 $ 669,000 $ 1,237,000
</TABLE>

<TABLE>

SCHEDULE XI
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
OCTOBER 31, 1996

<CAPTION>
Gross Amounts (A)(B)(C)(D)
---------------------------
Building/ Tax Accumulated
Description Land Improvements Total Basis Depreciation
- ------------------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1 Society Hill Florida 0 $ 258,000 $ 258,000 $ 258,000 0
Lake Worth, FL
Condominiums
2.North Center Drive $ 636,000 7,394,000 8,030,000 7,735,000 $ 1,336,000
North Brunswick, NJ
Flex Building
3 K.Hovnanian Corp.Center 541,000 5,232,000 5,773,000 5,773,000 1,343,000
West Palm Beach, FL
Office Building
4 Hovnanian Corp.Center 1,000,000 4,752,000 5,752,000 5,568,000 1,284,000
North Brunswick, NJ
Retail
5 Piscataway Retail 1,743,000 10,540,000 12,283,000 12,083,000 2,166,000
Piscataway, NJ
Retail Center
6 Hovnanian Corp. Center 616,000 8,682,000 9,298,000 9,298,000 3,419,000
North Brunswick, NJ
Office/Warehouse
7 Cypress Plaza 1,504,000 7,028,000 8,532,000 8,350,000 838,000
Jacksonville, FL
Retail Center
8 Hidden Meadows 544,000 5,740,000 6,284,000 6,284,000 480,000
Ocean Twp, NJ
Senior Rentals
9 North Brunswick V 238,000 692,000 930,000 930,000 13,000
North Brunswick, NJ
Retail/Land Under
Development
10 Norfolk Village 640,000 5,462,000 6,102,000 6,102,000 230,000
Mahwah, NJ
Senior Rentals
11 Miscellaneous 0 33,000 33,000 33,000 0
New Jersey
Leasehold Improvements
12 Hovnanian Corp. Center 2,591,000 5,216,000 7,807,000 6,985,000 0
North Brunswick, NJ
Land/Land Improvement
Approval & Flex Building
Under Construction
13 Newark Shopping Center 0 1,496,000 1,496,000 1,495,000 0
Newark, NJ
Land Improvement and
Approval Costs
14 Merrimack Commercial 75,000 100,000 175,000 175,000 0
Merrimack, NH
Land/Land Improvement
Costs
15 Cypress Plaza 1,104,000 417,000 1,521,000 1,521,000 0
Jacksonville, FL
Land/Land Improvement
and Approval Costs
16 Jensen Beach Club 190,000 0 190,000 190,000 0
Jensen Beach, FL
Land/Land Improvement
and Approval Costs
17 North Brunswick V
North Brunswick, NJ
Retail/Land Under
Development 975,000 785,000 1,760,000 1,540,000 0
18 NB Theatre
North Brunswick,NJ
Land/Land
Improvement 3,000 199,000 202,000 202,000 0
19 Allaire
Wall, NJ
Land/Land Improvement 50,000 26,000 76,000 76,000 0
----------- ------------ ----------- ----------- -----------
$12,450,000 $64,052,000 $76,502,000 $74,598,000 $11,109,000
=========== ============ =========== =========== ===========
<FN>
(A) Fiscal Year Construction Completed:
1 - 1985
2 through 3 - 1987
4 through 7 - 1990
8 through 9 - 1993
10 - 1995
11 through 19 - not completed

(B) Depreciable Life:
40 years - Depreciation expense was $2,665,000 for the year ended
October 31, 1996.
Depreciation expense was $1,973,000 for the year ended October 31, 1995.
Depreciation expense was $1,175,000 for the eight months ended
October 31, 1994, and $1,408,000 for the twelve months ended
February 28, 1994.
(C) Items marked 11 through 19 consist of land improvement, building
construction, and approval costs on land held for future development.

Balance - February 28, 1994 $ 83,807,000

Additions: Improvements 2,249,000
Transfers from inventories 145,000
Deletions: Cost of rental condominiums sold (1,806,000)
Cost of commercial center sold (1,243,000)
Cost of mini storage sold (3,892,000)
-------------
Balance - October 31, 1994 79,260,000
-------------
Additions: Improvement 840,000
Construction 5,779,000
Deletions: Cost of rental condominiums sold (1,760,000)
-------------
Balance - October 31, 1995 84,119,000
-------------
Additions: Improvements 1,115,000
Deletions: Cost of rental condominiums sold (152,000)
Cost of commercial center sold (8,457,000)
Cost of commercial land sold (114,000)
Cost of inventory sold (9,000)
-------------
Balance - October 31, 1996 $ 76,502,000
=============

Balance at October 31, 1996 is reported on the consolidated balance sheet as
rental and income producing properties under development.
</TABLE>

EXHIBIT 21
SUBSIDIARY LISTING

K. Hovnanian Equities, Inc.
EXC, Inc.
K. Hovnanian Companies of North Carolina, Inc.
KHL, Inc.
Hovnanian Texas, Inc.
Hovnanian Georgia, Inc.
Hovnanian Financial Services III, Inc.
K. Hovnanian Mortgage USA, Inc.
Hovnanian Financial Services IV, Inc.
K. Hovnanian Developments of New Jersey, Inc.
KHE Finance, Inc.
K. Hov International, Inc.
Hovnanian Financial Services II, Inc.
New Fortis Investment
Hovnanian Financial Services I, Inc.
K. Hovnanian Enterprises, Inc.
Hovnanian Pennsylvania, Inc.
Recreational Development Co., Inc.
K. Hovnanian Marine, Inc.
K. Hovnanian Aviation, Inc.
K. Hovnanian Companies of North Jersey, Inc.
K. Hovnanian at Montville, Inc.
K. Hovnanian at Wayne, Inc.
K. Hovnanian at Mahwah IV, Inc
K. Hovnanian at Morris II, Inc.
K. Hovnanian at Mahwah II, Inc.
K. Hovnanian at Mahwah III, Inc.
K. Hovnanian @ Northern Westchester, Inc.
K. Hovnanian at Hanover, Inc.
K. Hovnanian at Montville II, Inc.
K. Hovnanian @ Newark Urban Renewal Corp.I, Inc.
K. Hovnanian @ Newark I, Inc.
K. Hovnanian @ Newark Urban Renewal Corp.II, Inc.
Jersey City Danforth CSO
K. Hovnanian @ Newark Urban Renewal Corp.III, Inc.
K. Hovnanian @ Newark Urban Renewal Corp. IV, Inc.
K. Hovnanian @ Newark Urban Renewal Corp. V, Inc.
K. Hovnanian at Jersey City I, Inc.
K. Hovnanian at Jersey City II, Inc.(Phase 2A)
K. Hovnanian at Jersey City III, Inc.
K. Hovnanian at Mahwah VI, Inc.
K. Hovnanian at Jersey City II, Inc.(Phase 2B)
K. Hovnanian at Mahwah VII, Inc.
K. Hovnanian at Montclair, N.J., Inc.
K. Hovnanian at Horizon Heights, Inc.
K. Hovnanian at Reservoir Ridge, Inc.
K. Hovnanian at Mahwah V, Inc.
K. Hovnanian at Mahwah VIII, Inc.
K. Hovnanian of North Jersey, Inc. (Hudson River)
Montego Bay I Acquisition Corp., Inc.
Montego Bay Associates Limited I, LP (MBAI)
Montego Bay II Acquisition Corp., Inc.
Montego Bay Associates Limited II, LP (MBAII)
0515 Co., Inc.
K. Hovnanian at North Brunswick IV, Inc.
K. Hovnanian Properties of North Brunswick IV, Inc.
Arrow Properties, Inc.
KHIPE, Inc.
Pine Brook Company, Inc.
K. Hovnanian Properties of North Brunswick II, Inc.
K. Hovnanian Properties of Galloway, Inc.
K. Hovnanian @ Cedar Grove I, Inc.
K. Hovnanian @ Cedar Grove II, Inc.
K. Hovnanian Properties of Piscataway, Inc.
K. Hovnanian Properties of North Brunswick I, Inc.
Molly Pitcher Renovations, Inc.
K. Hovnanian Properties of East Brunswick II,Inc.
K. Hovnanian Investment Properties of N.J., Inc.
K. Hovnanian Investment Properties, Inc.
Hovnanian Properties of Atlantic County, Inc.
K. Hovnanian Properties of Newark Urban Renewal Corporation, Inc.
K. Hovnanian Properties of Hamilton, Inc.
K. Hovnanian Properites of Franklin, Inc.
K. Hovnanian Properties of North Brunswick III, Inc.
K. Hovnanian Properties of Franklin II, Inc.
K. Hovnanian at Jacksonville, Inc.
K. Hovnanian Properties of North Brunswick V, Inc.
K. Hovnanian Properties of Wall, Inc.
K.Hovnanian at Pompano Beach, Inc.
Hovnanian Properties of Lake Worth, Inc.
Landarama, Inc.
K. Hovnanian Companies Northeast, Inc.
Parthenon Group
Minerva Group
K. Hovnanian Companies of Central Jersey, Inc.
K. Hovnanian Real Estate Investment, Inc.
K. Hovnanian at Princeton, Inc.
K. Hovnanian at South Brunswick III, Inc.
K. Hovnanian at South Brunswick IV, Inc.
K. Hovnanian at Plainsboro I, Inc.
K. Hovnanian at Plainsboro II, Inc.
K. Hovnanian at Klockner Farms, Inc.
K. Hovnanian at South Brunswick II, Inc.
K. Hovnanian at Hopewell III, Inc.
K. Hovnanian at Hopewell I, Inc.
K. Hovnanian at South Brunswick, Inc.
K. Hovnanian at East Windsor I, Inc.
K. Hovnanian at North Brunswick II, Inc.
K. Hovnanian at North Brunswick III, Inc.
K. Hovnanian at Hopewell II, Inc.
K. Hovnanian at Somerset VIII, Inc.
K. Hovnanian at Lawrence Square, Inc.
Dryer Associates, Inc.
K. Hovnanian at East Brunswick V, Inc.
K. Hovnanian at Bernards II, Inc.
K. Hovnanian at Bridgewater III, Inc.
K. Hovnanian at Plainsboro III, Inc.
K. Hovnanian at Somerset V, Inc.
K. Hovnanian at Somerset VI, Inc.
Eastern Title Agency, Inc.
K. Hovnanian Mortgage, Inc.
Governors Abstract
Eastern National Title Insurance Agency, Inc.
Founders Title Agency, Inc.
K. Hovnanian Companies North Central Jersey, Inc.
K. Hovnanian at Bedminster, Inc.
K. Hovnanian at Bridgewater IV, Inc.
K. Hovnanian at Branchburg III, Inc.
K. Hovnanian at Spring Ridge, Inc.
K. Hovnanian at Bridgewater V, Inc.
K. Hovnanian at Readington, Inc.
K. Hovnanian at Branchburg II, Inc.
K. Hovnanian at Bridgewater II, Inc.
K. Hovnanian at Branchburg I, Inc.
K. Hovnanian Companies Jersey Shore, Inc.
K. Hovnanian at Wall Township, Inc.
K. Hovnanian at Galloway VIII, Inc.
K. Hovnanian at Dover Township, Inc.
K. Hovnanian at Galloway VII, Inc.
K. Hovnanian at Tinton Falls II, Inc.
K. Hovnanian at Ocean Township, Inc.
K. Hovnanian at Wall Township II, Inc.
K. Hovnanian at Wall Township III, Inc.
K. Hovnanian at Holmdel Township, Inc.
K. Hovnanian at Wall Township IV, Inc.
K. Hovnanian at Wall Township V, Inc.
K. Hovnanian at Atlantic City, Inc.
K. Hovnanian at Ocean Township II, Inc.
K. Hovnanian at Ocean Township, Inc.
K. Hovnanian at Marlboro Township, Inc.
K. Hovnanian at Howell Township, Inc.
K. Hovnanian at Howell Township II, Inc.
K. Hovnanian at Woodbury Oaks, Inc.
K. Hovnanian at Freehold Township, Inc.
K. Hovnanian at Lakewood, Inc.
K. Hovnanian Companies of the Delaware Valley, Inc.
K. Hovnanian Co. of Delaware Valley, Inc. Brokerage Company
K. Hovnanian at Lower Saucon, Inc
K. Hovnanian at Perkiomen I, Inc.
K. Hovnanian at Montgomery I, Inc.
K. Hovnanian at Upper Merion, Inc.
K. Hovnanian at Perkiomen II, Inc.
K. Hovnanian Companies of South Jersey, Inc.
K. Hovnanian at Valleybrook, Inc.
Kings Grant Evesham Corp.
K. Hovnanian at Burlington, Inc.
K. Hovnanian at Medford I, Inc.
K. Hovnanian at The Reserve @ Medford, Inc
K. Hovnanian at Kings Grant I, Inc.
K. Hovnanian at Valleybrook II, Inc.
K. Hovnanian Real Estate of Florida, Inc.
Hovnanian Developments of Florida, Inc.
K. Hovnanian Companies of Florida, Inc.
Hovnanian of Palm Beach II, Inc.
Hovnanian of Palm Beach III, Inc.
Hovnanian of Palm Beach IV, Inc.
Hovnanian of Palm Beach V, Inc.
Hovnanian of Palm Beach VI, Inc.
Hovnanian of Palm Beach VII, Inc.
Hovnanian of Palm Beach VIII, Inc.
Hovnanian of Palm Beach IX, Inc.
Hovnanian at Tarpon Lakes I, Inc.
Hovnanian at Tarpon Lakes II, Inc.
Hovnanian at Tarpon Lakes III, Inc.
K. Hovnanian at Pasco I, Inc.
K. Hovnanian at Ft. Myers I, Inc.
K. Hovnanian at Palm Beach XI, Inc.
K. Hovnanian at Jensen Beach, Inc.
Hovnanian of Palm Beach X, Inc.
K. Hovnanian at Martin Downs I, Inc.
K. Hovnanian at Jacksonville I, Inc.
K. Hovnanian at Ft. Myers II, Inc.
K. Hovnanian at Lawrence Grove, Inc.
K. Hovnanian at Jacksonville II, Inc.
K. Hovnanian of Palm Beach XIII, Inc.
Hovnanian of Palm Beach, Inc.
K. Hovnanian at Half Moon Bay, Inc.
K. Hovnanian at Woodridge Estates, Inc.
Pike Utilities, Inc.
Tropical Service Builders, Inc.
K. Hovnanian at Embassy Lakes, Inc.
K. Hovnanian at Delray Beach II, Inc.
K. Hovnanian at Orlando I, Inc.
K. Hovnanian at Orlando II, Inc.
K. Hovnanian at Orlando III, Inc.
K. Hovnanian at Martin Downs II, Inc.
K. Hovnanian at Orlando IV, Inc.
K. Hovnanian Properties of Orlando, Inc.
K. Hovnanian at Delray Beach I, Inc.
K. Hovnanian at Pasco II, Inc.
K. Hovnanian at Port St. Lucie I, Inc.
K. Hovnanian at Delray Beach, Inc.
Eastern National Title Insurance Agency, Inc.
K. Hovnanian Mortgage of Florida, Inc.
South Florida Residential Title Agency, Inc.
Eastern National Title Insurance Agency I, Inc.
Western Financial Services, Inc.
r. e. Scott Mortgage co. of Florida, Inc.
New K. Hovnanian Developments of Florida, Inc.
New K. Hovnanian Companies of Florida, Inc.
K. Hovnanian at Fairway Views, Inc.
K. Hovanian at Lake Charleston, Inc.
K. Hovnanian at Carolina Country Club I, Inc.
K. Hovnanian at Chapel Trail, Inc.
K. Hovnanian at Winston Trails, Inc.
K. Hovnanian at Lakes of Boca Raton, Inc.
K. Hovnanian at Lake Charleston II, Inc.
K. Hovnanian at Lake Charleston III, Inc.
K. Hovnanian at Carolina Country Club II, Inc.
K. Hovnanian at Winston Trails, Inc.
K. Hovnanian at Pembroke Isles, Ins.
K. Hovnanian at Carolina Country Club III, Inc.
K. Hovnanian at Coconut Creek, Inc.
K. Hovnanian at Polo Trace, Inc.
K. Hovnanian Companies of New York, Inc.
K. Hovnanian at Westchester, Inc.
K. Hovnanian at Peekskill, Inc.
K. Hovnanian at Washingtonville, Inc.
K. Hovnanian at Mahopac, Inc.
K. Hovnanian at Carmel, Inc.
K. Hovnanian Developments of New York, Inc.
Cedar Hill Water Corporation
Cedar Hill Sewer Corporation
R.C.K. Community Management Co., Inc.
K. Hovnanian Companies of Massachusetts, Inc.
K. Hovnanian at Merrimack, Inc.
K. Hovnanian at Merrimack II, Inc.
K. Hovnanian at Taunton, Inc.
New England Community Management Co., Inc.
K. Hovnanian Cos. of Metro Washington, Inc.
K. Hovnanian at Ashburn Village, Inc.
K. Hovnanian at Woodmont,, Inc.
K. Hovnanian at Sully Station, Inc.
K. Hovnanian at Bull Run, Inc.
K. Hovnanian at Montclair, Inc.
K. Hovnanian at River Oaks, Inc.
K. Hovnanian at Holly Crest, Inc.
K. Hovnanian at Woodmont, Inc.
K. Hovnanian at Montclair, Inc.(Montclair Condos)
K. Hovnanian at Fair Lakes, Inc.
K. Hovnanian at Ashburn Village, Inc.
K. Hovnanian at Park Ridge, Inc.
K. Hovnanian at Belmont, Inc.
K. Hovnanian at Fair Lakes Glen, Inc.
K. Hovnanian Developments of Metro Washington, Inc.
K. Hovnanian at River Oaks, Inc.
K. Hovnanian at Montclair, Inc. (Montclair Laing)
K. Hovnanian Companies of California, Inc.
K. Hovnanian at Clarkstown, Inc.
K. Hovnanian at West Orange, Inc.
K. Hovnanian at Wayne III, Inc.
K. Hovnanian at Wayne IV, Inc.
K. Hovnanian at Wayne V, Inc.
K. Hovnanian at Hackettstown, Inc.
K. Hovnanian at Spring Mountain, Inc.
K. Hovnaian at East Windsor II, Inc.
K. Hovnanian Treasure Coast, Inc.
K. Hovnanian at La Terraza, Inc.
K. Hovnanian at Highland Vineyards, Inc.
K. Hovnanian Companies of Southern California II, Inc.
K. Hovnanian at Vail Ranch, Inc.
K. Hovnanian at Carmel Del Mar, Inc.
K. Hovnanian at Calabria, Inc.
K. Hovnanian Developments of California, Inc.
K. Hovnanian at Ballantrae, Inc.
Ballantrae Home Sales, Inc.
K. Hovnanian at Hunter Estates, Inc.
K. Hovnanian Developments of Maryland, Inc.
K. Hovnanian Companies of Maryland, Inc.
K. Hovnanian at Seneca Crossing, Inc.
K. Hovnanian at Exeter Hills, Inc.
K. Hovnanian Southeast Florida, Inc.
K. Hovnanian Florida Region, Inc.
K. Hovnanian at East Brunswick VI, Inc.
K. Hovnanian at Berlin, Inc.
K. Hovnanian at Bedminster II, Inc.
K. Hovnanian at Marlboro Township II, Inc.
K. Hovnanian at Inverrary I, Inc.
K. Hovnanian at Mahwah IX, Inc.
K. Hovnanian at Hopewell IV, Inc.
K. Hovnanian at Northlake, Inc.
K. Hovnanian at Castile, Inc.
K. Hovnanian at Tierrasanta, Inc.
K. Hovnnaian at Bridgewater VI, Inc.
K. Hovnanian at Preston, Inc.
K. Hovnanian at Bernards III, Inc.
K. Hovnanian at Wayne VI, Inc.
K. Hovnanian at Rancho Cristianitos, Inc.
K. Hovnanian at La Trovata, Inc.
K. Hovnanian at Watchung Reserve, Inc.
K. Hovnanian at Windsong East Brunswick, Inc.
K. Hovnanian at South Brunswick V, Inc.
K. Hovnanian at Wall Township III, Inc.
K. Hovnanian at Tannery Hill, Inc.
K. Hovnanian at Upper Freehold Township I, Inc.
K. Hovnanian at Jefferson, Inc.
K. Hovnanian at Hershey's Mill, Inc.
K. Hovnanian at Bernards VI, Inc.
K. Hovnanian at Port Imperial North, Inc.
K. Hovnanian at Hopewell V, Inc.
K. Hovnanian at Hopewell VI, Inc.
K. Hovnanian at Manalapan II, Inc.
K. Hovnanian at Union Township, Inc.
K. Hovnanian at Wayne VII, Inc.
K. Hovnanian at Scotch Plains II, Inc.
K. Hovnanian at Thornbury, Inc.
K. Hovnanian at Cameron Chase, Inc.
K. Hovnanian at Marlboro Township IV, Inc.
K. Hovnanian at Port Imperial Urban Renewal, Inc.

<ARTICLE> 5
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 20,731
<SECURITIES> 0
<RECEIVABLES> 26,442
<ALLOWANCES> 0
<INVENTORY> 376,307
<CURRENT-ASSETS> 520,802
<PP&E> 33,221
<DEPRECIATION> 14,970
<TOTAL-ASSETS> 614,111
<CURRENT-LIABILITIES> 176,269
<BONDS> 244,220
<COMMON> 237
0
0
<OTHER-SE> 193,385
<TOTAL-LIABILITY-AND-EQUITY> 614,111
<SALES> 778,680
<TOTAL-REVENUES> 807,464
<CGS> 651,492
<TOTAL-COSTS> 750,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,157
<INCOME-PRETAX> 25,006
<INCOME-TAX> 7,719
<INCOME-CONTINUING> 17,287
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