This is a rush transcript from "Your World With Neil Cavuto," June 3, 2010. This copy may not be in its final form and may be updated.

NEIL CAVUTO, ANCHOR: So, you think that homebuyer tax credit is history? Not so fast. A national real estate group is now pushing for another extension of that final deadline.

My next guest was hoping for a bigger bump in sales from those credits. Nevertheless, his homebuilding company reported narrower losses, fewer cancellations in its second quarter.

Joining me now, Ara Hovnanian, CEO of Hovnanian Enterprises.

Ara, good to have you.

ARA HOVNANIAN, CEO, HOVNANIAN ENTERPRISES: Good to be back.

CAVUTO: What do you think of this effort to get the tax credit extended?

HOVNANIAN: Well, I mean, clearly, from the beginning, many in the industry would have liked to have seen a little longer period. They enacted it right before the very quiet winter selling season.

So, there really was only two or three months of active selling going on. We also wanted to see a larger credit. That being said, you know, at this point, whether or not it can be extended is probably a long shot.

CAVUTO: Does it make a difference to your buyers? Of course, you’re right but you also skew on the upper-income side. Does it make a difference to them?

(CROSSTALK)

HOVNANIAN: About 40 percent of our buyers are first-time homebuyers...

CAVUTO: Are they really?

HOVNANIAN: ...which is a significant amount, although the tax credit actually was aimed not just for first-time homebuyers, but they’re the biggest beneficiary.

It did make a difference. Did it change a bad housing market to an excellent one? No, but did it help? Absolutely.

CAVUTO: Do you think that it might have had the Pavlovian response that people wouldn’t buy homes unless the government was in there helping them, and that you be careful what you wish for, because, once it’s taken away, it ain’t happening?

HOVNANIAN: Yes, but I think it’s a reasonable response that, in the last few weeks, before it expired, sales ramped up. I think that’s normal. And I think it’s normal to say, in the following few weeks, sales would drop down.

The key is, what’s going to happen now? We’re getting into June. We’re getting into July. That’s the key.

CAVUTO: And what are you noticing happening at your communities? Are more interested now...

(CROSSTALK)

HOVNANIAN: Yes. I would say, in general, Neil, we’re seeing more stability. It’s been a dramatically different environment over the last six months.

CAVUTO: What’s stability?

HOVNANIAN: The tax credit has helped.

Stability means prices generally aren’t dropping, and the sales pace is steady. I mean, it may be a little choppy, but it’s steady.

CAVUTO: But those buying have to go through more hoops than they used to.

HOVNANIAN: Well, clearly, given what’s happened in the mortgage market, you have to have a better credit history. But, if you have a good credit history, there’s plenty of credit out there.

CAVUTO: So, your typical customers, are they putting thing down 10, 15, 20 percent? We’re back to the old days? What?

HOVNANIAN: Well, interestingly, about 40 percent of our buyers are using FHA financing. The advantage of FHA financing is you can buy with only 3.5 percent down if you have good credit.

We certainly have a fair number of buyers.

CAVUTO: What is good credit? What is good?

HOVNANIAN: Well, credit scores in the high 600s.

CAVUTO: Right. Otherwise, no one talks to you.

HOVNANIAN: Well, otherwise, it’s more challenging.

CAVUTO: But no-doc loans and everything, they are gone.

HOVNANIAN: That’s gone.

(CROSSTALK)

HOVNANIAN: The kind of irresponsible lending that got the whole country into this trouble, that no longer exists.

CAVUTO: Could I ask you while you’re here, there’s this big financial reform movement going on. Hopefully, they say they want to get a bill out by the end of the summer. But this would be a measure that would not include Fannie Mae and Freddie Mac, which some argue, fairly or not, Ara, started this disaster.

What do you make of that?

HOVNANIAN: Well, the first thing I would say is, while Fannie and Freddie and FHA certainly could use reform, based on what has happened, I would say, this is not the time to be focused on that.

We need to go through this — the great recession, which has really focused on the housing industry, among other industries, and then worry about a long-term solution. The short-term key thing is to stop irresponsible lending. That’s happened.

There are probably more...

CAVUTO: It hasn’t gone the other way to now no lending or limited lending?

HOVNANIAN: No, it has probably gone a little to the other direction. That will correct itself over time. On the longer term, they have got to look at what — what fixes they need to prevent this kind of problem from happening again.

CAVUTO: Which is more of a deciding factor, on the plus side, interest rates at generational lows, or an unemployment rate still at generational highs?

HOVNANIAN: Well, it’s not only interest rates. We’re at — the combination of record low rates and very low prices has brought the affordability index to the lowest point it’s ever been since 1975, when they started the index.

CAVUTO: Are they still really under-appraising? Remember, in the old days, everything was over-appraised, now under-appraised.

HOVNANIAN: Appraisals are a challenge. It’s one of the headaches the industry has to deal with, because the appraisers are looking at foreclosures and not giving...

(CROSSTALK)

CAVUTO: That’s skewing the numbers.

HOVNANIAN: That’s skewing the numbers. It really hurts.

On the whole, though, I have got to say, the market is stabilizing. We just hope it stays here as the low and then begins to build in the second half of the year. But the decline that we have been seeing, that seems to...

(CROSSTALK)

CAVUTO: You going to merge with anyone?

HOVNANIAN: I — we’re not planning on it. Right now, we have got plenty of capital...

(CROSSTALK)

CAVUTO: Is anyone kicking your tires?

HOVNANIAN: No, not right now.

CAVUTO: Are you kicking anyone’s tires?

HOVNANIAN: We are kicking the banks` tires for land. All homebuilders are out there. Land, believe it or not, is going to be in short supply at some point. And we’re all very, very active.

You have got to remember, over the last five years, nobody’s been putting in streets and sidewalks because of the market conditions.

CAVUTO: That’s true. That’s true.

HOVNANIAN: We have all been depleting what is out there.

So, I think it’s going to be a healthy market, because supply is shrinking. Demand is still high. Production is low. So, I think it’s going to be an interesting environment.

CAVUTO: We shall watch closely, sir. Thank you very much, Ara Hovnanian, the Hovnanian in Hovnanian.

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