HOVNANIAN ENTERPRISES INC

1. Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and include Hovnanian Enterprises, Inc.’s (“HEI”) accounts and those of all its consolidated subsidiaries, after elimination of all intercompany balances and transactions. HEI’s fiscal year ends on* October 31.*Noncontrolling interest represents the proportionate equity interest in a consolidated joint venture that is not 100% owned by HEI, directly or indirectly; we sold our membership interest in such joint venture during the first quarter of fiscal 2024.

2. Business

HEI conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company,” “we,” “us” or “our” refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI’s subsidiaries). Our operations consist of homebuilding, financial services and corporate. Our homebuilding operations are made up ofthree reportable segments defined as Northeast, Southeast and West. Homebuilding operations comprise the substantial part of our business, representing approximately 97% of consolidated revenues for the year ended October 31, 2025, and approximately 98% for both of the years ended2024 and 2023*.HEI is a Delaware corporation, which through its subsidiaries, was building and selling homes in Arizona, California, Delaware, Florida, Georgia, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia, across 140 consolidated active selling communities at October 31, 2025*. Our homebuilding subsidiaries offer a wide variety of homes that are designed to appeal tofirst-time buyers, move-up buyers, luxury buyers, active lifestyle buyers and empty nesters. Our financial services operations, which are a reportable segment, provide mortgage banking and title services to the homebuilding operations’ customers. Our financial services subsidiaries donot typically retain or service the mortgages that they originate but rather sell the mortgages and related servicing rights to investors. Corporate primarily includes the operations of our corporate office whose primary purpose is to provide executive services, accounting, information services, human resources, management reporting, training, cash management, internal audit, risk management, and administration of process redesign, quality, and safety.

See Note10 “Operating and Reporting Segments” for further disclosure of our reportable segments.

3. Summary of Significant Accounting Policies

Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP 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 Consolidated Financial Statements.

Income Recognition from Home and Land Sales - We are primarily engaged in the development, construction, marketing and sale of residential single-family and multi-family homes where the planned construction cycle is less than12 months. For these homes, in accordance with ASC606, “Revenue from Contracts with Customers,” revenue is recognized when control is transferred to the buyer, which occurs when the buyer takes title to and possession of the home and there isno continuing involvement. From time to time, as market conditions warrant, we offer sales incentives which enable customers to reduce the base price of a home or to reduce the price of options. These incentives are recorded as a reduction of revenue in accordance with ASC606.

Income Recognition from Mortgage Loans - Our financial services segment originates mortgages, primarily for our homebuilding customers. We use mandatory investor commitments and forward sales of mortgage-backed securities (“MBS”) to hedge our mortgage-related interest rate exposure on agency and government loans. These short-term instruments do not require any payments to be made to third parties in connection with the execution of the commitments.

We elected the fair value option for our mortgage loans held for sale in accordance with ASC825, “Financial Instruments,” which permits us to measure our loans held for sale at fair value. Management believes that the election of the fair value option for loans held for sale improves financial reporting because it mitigates volatility in reported earnings and by measuring the fair value of loans and the derivative instruments used to economically hedge them, we donot have to apply complex hedge accounting provisions.

Substantially all of the mortgage loans originated are sold within a short period of time in the secondary mortgage market on a servicing released, nonrecourse basis, although the Company remains liable for certain limited representations, such as fraud, and warranties related to loan sales. Mortgage investors could seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited representations and warranties. We have established reserves for probable losses.

Cash and Cash Equivalents - Cash equivalents include certificates of deposit, U.S. Treasury bills and government money–market funds with maturities of90 days or less when purchased. Our cash balances are held at a few financial institutions and* may,at times, exceed insurable amounts. We believe we help to mitigate this risk by depositing our cash in major financial institutions. At October 31, 2025 and2024*, $11.9 million and $13.6 million, respectively, of the total cash and cash equivalents was in cash equivalents and restricted cash equivalents.

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. Our financial instruments consist of cash and cash equivalents, restricted cash and cash equivalents, receivables, deposits and notes, accounts payable and other liabilities, customers’ deposits, mortgage loans held for sale, nonrecourse mortgages, mortgage warehouse lines of credit, credit facilities, accrued interest and senior notes. The fair value of the credit facilities and senior notes is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities or whennot available, are estimated based onthird-party broker quotes or management’s estimate of the fair value based on available trades for similar debt instruments. The fair value of all of our other financial instruments approximates their carrying amounts.

Inventories - Inventories consist of land, land development, home construction costs, capitalized interest, construction overhead and property taxes. Construction costs are accumulated during the period of construction and charged to cost of sales under the specific identification method. Land, land development and common facility costs are allocated based on buildable acres to product types within each community, then charged to cost of sales equally based upon the number of homes to be constructed for each product type.

We record inventories on our Consolidated Balance Sheets at cost unless the inventory is determined to be impaired, in which case the inventory is written down to its fair value. Our inventories consist of the following components: (1) sold and unsold homes and lots under development, which includes all construction, land, capitalized interest and land development costs related to started homes and land under development in our active communities; (2) land and land options held for future development or sale, which includes all costs related to land in our communities in planning or mothballed communities; and (3) consolidated inventorynot owned, which consists of model homes financed with an investor and inventory related to land banking arrangements accounted for as financings.

We sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to athird-party at the end of the respective lease. As a result of our continued involvement and the ability to repurchase model homes with below market options, for accounting purposes in accordance with ASC606, these sale and leaseback transactions are considered a financing rather than a sale. Our Consolidated Balance Sheets, at* October 31, 2025 and2024*, included inventory of $74.3 million and $46.1 million, respectively, recorded to “Consolidated inventorynot owned” with a corresponding amount of $75.6 million (net of debt issuance costs) and $46.2 million, respectively, recorded to “Liabilities from inventorynot owned” for the amount of net cash received from the transactions.

We have land banking arrangements, whereby we sell our land parcels to a land banker and they provide us an option to purchase back finished lots on a predetermined schedule. Because of our options to repurchase these parcels, for accounting purposes, in accordance with ASC606, these transactions are considered a financing rather than a sale. Our Consolidated Balance Sheets at* October 31, 2025 and2024* included inventory of $258.6 million and $164.9 million, respectively, recorded to “Consolidated inventorynot owned” with a corresponding amount of $169.1 million (net of debt issuance costs) and $94.1 million (net of debt issuance costs), respectively, recorded to “Liabilities from inventorynot owned” for the amount of net cash received from the transactions.

The recoverability of inventories and other long-lived assets is assessed in accordance with ASC360, “Property, Plant and Equipment.” ASC360 requires long-lived assets, including inventories, held for development to be evaluated for impairment based on the undiscounted future cash flows of the assets at the lowest level for which there are identifiable cash flows. We evaluate impairment at the individual community level, which is the lowest level of discrete cash flows that are available.

We evaluate inventories of communities under development and held for future development for impairment when indicators of potential impairment are present. Indicators of impairment include, but arenot limited to, decreases in local housing market values, decreases in gross margins or sales absorption rates, decreases in net sales prices (base sales price, net of sales incentives), or actual or projected operating or cash flow losses. The assessment of communities for indication of impairment is performed quarterly. As part of this process, we prepare detailed budgets for all of our communities at least semi-annually and identify those communities with a projected operating loss. For those communities with projected losses, we estimate the remaining undiscounted future cash flows and compare those to the carrying value of the community, to determine if the carrying value of the asset is recoverable.

The projected operating profits, losses or cash flows of each community can be significantly impacted by our estimates of the following:

These estimates are dependent upon specific market conditions for each community. While we consider available information to determine what we believe to be our best estimates as of the end of each quarter, these estimates are subject to change in future reporting periods as facts and circumstances change. Local market-specific conditions that* may*impact our estimates for a community include:

These and other local market-specific conditions that* maybe present are considered by management in preparing projection assumptions for each community. The sales objectives can differ between our communities, even within a given market. For example, facts and circumstances in a given community maylead us to price our homes with the objective of yielding a higher sales absorption pace, while facts and circumstances in another community maylead us to price our homes to minimize deterioration in our gross margins, although it mayresult in a slower sales absorption pace. In addition, the key assumptions included in our estimate of future undiscounted cash flows maybe interrelated. For example, a decrease in estimated base sales price or an increase in homes sales incentives mayresult in a corresponding increase in sales absorption pace. Additionally, a decrease in the average sales price of homes to be sold and closed in future reporting periods forone* community that hasnot been generating what management believes to be an adequate sales absorption pace* mayimpact the estimated cash flow assumptions of a nearby community. Changes in our key assumptions, including estimated construction and development costs, sales absorption pace and selling strategies, could materially impact future cash flow and fair value estimates. Due to the number of possible scenarios that would result from various changes in these factors, we donot* believe it is possible to develop a sensitivity analysis with a level of precision that would be meaningful to an investor.

If the undiscounted cash flows are more than the carrying value of the community, then the carrying amount is recoverable, andno impairment is recorded. However, if the undiscounted cash flows are less than the carrying amount, then the community is deemed impaired and is written down to its fair value. We determine the estimated fair value of each community by calculating the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community, or in limited circumstances, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale), and recent bona fide offers received fromthird parties. The estimated future cash flow assumptions are virtually the same for both our recoverability and fair value assessments. Should the estimates or expectations used in determining estimated cash flows or fair value, including discount rates, decrease or differ from current estimates in the future, we* may*be required to recognize additional impairments related to current and future communities. The impairment of a community is allocated to each lot on a relative fair value basis.

From time to time, we write off deposits, approval, engineering and capitalized interest costs when we determine that it isno longer probable that we will exercise options to buy land in specific locations or when we redesign communities and/or abandon certain engineering costs. In decidingnot to exercise a land option, we take into consideration changes in market conditions, the timing of required land takedowns, the willingness of land sellers to modify terms of the land option contract (including timing of land takedowns), and the availability and best use of our capital, among other factors.

Inventories held for sale consists of parcels ready for sale in their current condition, where we have decided not to build homes but are instead actively marketing the parcels to potential buyers. As of October 31, 2025, there wasno land held for sale, compared to $5.1 million of land held for sale at October 31, 2024. Land held for sale is reported at the lower of its carrying amount or fair value less costs to sell. In determining fair value for land held for sale, management considers, among other things, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale) and recent bona fide offers received from outside third parties.

Warranty Costs and Construction Defect Reserves - We accrue warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed in“Selling, general and administrative” homebuilding expenses. For homes delivered in fiscal 2025 and 2024, our deductible under our general liability insurance was $30.0 million annually, aggregated for construction defect and warranty claims. As of November 1, 2023, weno longer have an aggregate deductible for bodily injury claims. For bodily injury claims, our deductible per occurrence in fiscal 2025 and 2024 was $0.25 million and $0.5 million for action over claims, respectively, both with a $30.0 million limit. We donot have a deductible on our workers' compensation insurance. Reserves for estimated losses for construction defects, warranty and bodily injury claims have been established using the assistance of athird-party actuary. Thethird-party actuary uses our historical warranty and construction defect data to assist management in estimating our unpaid claims, claim adjustment expenses and incurred butnot reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates consider provisions for inflation, claims handling and legal fees. These estimates are subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our markets and the types of products we build, claim settlement patterns, insurance industry practices and legal interpretations, among others. Because of the high degree of judgment required in determining these estimated liabilities, actual future costs could differ significantly from our currently estimated amounts. In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that arenot covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and control is transferred to the buyer.

Interest - Interest attributable to properties under development during the land development and home construction period is capitalized and then expensed to cost of sales as the related inventories are sold. Interest that doesnot qualify for capitalization is expensed as incurred in “Other interest.”

Interest costs incurred, expensed and capitalized were as follows:

Land Options - We have access to land and lots through option contracts. Costs incurred to obtain options to acquire improved or unimproved home sites are capitalized. Such amounts are either included as part of the purchase price if the land is acquired or charged to “Inventory impairments and land option write-offs” if we determine we willnot exercise the option. We record costs associated with options on the Consolidated Balance Sheets under “Land and land options held for future development or sale.”

In accordance with ASC810, “Consolidation,” we evaluate option contracts for land to determine whether they are with variable interest entities (“VIEs”) and, if so, whether we are the primary beneficiary. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. VIEs are consolidated when we have a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. If land and lot options are determined to be with VIEs and we are the primary beneficiary or the options have terms that require us to record it as a financing, then we record the land and lots under option on the Consolidated Balance Sheets under “Consolidated inventorynot owned” with an offset under “Liabilities from inventorynot owned.” We perform on-going re-assessments of VIEs based on subsequent events, such as the modification of contracts or other changes in facts and circumstances, which could cause our consolidation conclusions to change.

Unconsolidated Homebuilding and Land Development Joint Ventures - Investments in unconsolidated entities in which the Company has significant influence over the operating and financial decisions of the entity, but holds less than a controlling financial interest, are accounted for by the equity method. In all periods presented, our investments in unconsolidated homebuilding and land development joint ventures are accounted for under the equity method because we are not the primary beneficiary or de-facto agent, and we have a significant, but less than controlling, interest in the entities. Under the equity method, we recognize our proportionate share of income and loss earned by the joint venture upon the delivery of lots or homes tothird parties. Our ownership interests in joint ventures vary but our voting equity interests held are generally 20% to 50%.

Specific criteria is used when determining if we are the primary beneficiary of, or have a controlling interest in, an unconsolidated entity. Factors considered in determining whether we have significant influence, or we have control include risk and reward sharing, experience and financial condition of the other partner, voting rights, involvement in day-to-day capital and operating decisions and continuing involvement. The evaluation of whether an entity is a variable interest entity or a voting interest entity and then whether we are the primary beneficiary or have control or significant influence can require significant judgment. We believe that the equity method of accounting is appropriate for our investments in unconsolidated entities where we are not the primary beneficiary and we do not have a controlling interest but rather share control with our partners. In most cases, the joint venture agreements require that both partners agree on establishing the significant operating and capital decisions of the partnership, including budgets, in the ordinary course of business.

In accordance with ASC323, “Investments - Equity Method and Joint Ventures,” we assess our investments in unconsolidated joint ventures for recoverability quarterly, and if it is determined that a loss in value of the investment below its carrying amount is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint venture’s projected cash flows. This process requires significant management judgment and estimates.

Debt Issuance Costs - Costs associated with our credit facilities and senior notes are capitalized and amortized over the respective term of the debt. The capitalized costs are recorded as a contra liability within our debt balances, except for the credit facility costs, which are recorded as a prepaid expense.

Debt Issued at a Discount*/Premium** -* Debt issued at a discount or premium to the face amount is amortized utilizing the effective interest method over the respective term and recorded as a component of“Other interest” in the Consolidated Statements of Operations.

Advertising Costs - Advertising costs are expensed as incurred, primarily to“Selling, general and administrative” homebuilding expense in the Consolidated Statements of Operations. During the years ended* October 31, 2025,*2024 and2023, advertising expenses totaled $22.8 million, $17.2 million and $15.4 million, respectively.

Deferred Income Taxes - Deferred income taxes are provided for temporary differences between amounts recorded for financial reporting and income tax purposes. If the combination of future years’ income (or loss) combined with the reversal of the timing differences results in a loss, such losses can be carried forward to future years to recover deferred tax assets. In accordance with ASC740, “Income Taxes,” we evaluate our deferred tax assets quarterly to determine if valuation allowances are required. We assess whether valuation allowances should be established based on the consideration of all available evidence using a “more-likely-than-not” standard.

In evaluating the exposures associated with our various tax filing positions, we recognize tax liabilities for more-likely-than-not exposures on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity by taxing authorities and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision. A number of years* mayelapse before a particular matter for which we have established a liability is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax expense in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Due to the complexity of some of these uncertainties, the ultimate resolution may*result in a liability that is materially different from our current estimate. Any such changes will be reflected as increases or decreases to“Income taxes” in the Consolidated Statement of Operations for the period in which they are determined. In addition, we record interest and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and penalties are included within“Income taxes payable” on the Consolidated Balance Sheets.

Prepaid Expenses - Prepaid expenses that relate to specific communities (i.e., model setup, architectural fees, homeowner warranty program fees, interest rate buydowns, etc.) are charged to cost of sales as the applicable inventories are sold. All other prepaid expenses are amortized over a specific time period or as used and charged to overhead expense.

Allowance for Credit Losses – We regularly review our receivable balances, which are included in“Receivables, deposits and notes, net” on the Consolidated Balance Sheets, for collectability. These include receivables from our insurance carriers, receivables from municipalities related to the development of utilities or other infrastructure, and other miscellaneous receivables. Allowances are maintained for potential credit losses based on historical experience, present economic conditions and other factors considered relevant. The allowance for credit losses were $12.9 million and $13.0 million at* October 31, 2025 and2024*, respectively.

Property and Equipment - Property and equipment are recorded at cost. Maintenance and repair costs are expensed as incurred. Depreciation is computed using the straight-line method based upon estimated useful lives, generally as follows: Building and building improvements -39 years or life of the lease; Furniture -5-7 years; Equipment -5-7 years; Capitalized software -3-5 years.

Stock-Based Compensation - We account for our stock-based awards under ASC718, “Compensation - Stock Compensation” which requires a fair-value based method to determine the estimated cost of an award. Compensation cost for stock-based awards is measured on the grant date. We recognize compensation cost for time-based awards ratably over the vesting period and performance-based awards ratably over the vesting period when it is probable that the stated performance target will be achieved. Forfeitures of stock-based awards are recognized as they occur.

Per Share Calculations - Basic earnings per share is computed by dividing net income (loss) (the“numerator”) by the weighted-average number of common shares outstanding, adjusted for participating securities (the“denominator”) for the period. Contingently issuable shares are included in basic earnings per share as of the date that all necessary vesting conditions have been satisfied. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of stock options and nonvested shares of restricted stock units (“RSUs”). Any stock options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.

All shares that contain non-forfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in earnings per share pursuant to thetwo-class method. Thetwo-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings in periods where we have net income.

Recent Accounting Pronouncements -InNovember 2023,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Improvements to Reportable Segment Disclosures” (“ASU2023-07”). ASU2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within the segment measure of profit or loss. We adopted ASU 2023-07 for the year ended October 31, 2025, and applied it retrospectively to all prior periods presented in our Consolidated Financial Statements (see Note 10).

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires enhanced disclosures related to the rate reconciliation and information on income taxes paid. This guidance will be applied prospectively and is effective for annual reporting periods in fiscal years beginning after December 15, 2024. We are currently evaluating the potential impact the adoption of this guidance will have on our Consolidated Financial Statements.

In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses” (“ASU 2024-03”). ASU 2024-03 requires disclosure of additional information about specific cost and expense categories in the notes to the financial statements. This guidance will be applied either prospectively or retrospectively and is effective for annual reporting periods in fiscal years beginning after December 15, 2026, and interim reporting periods in fiscal years beginning after December 15, 2027. We are currently evaluating the potential impact the adoption of this guidance will have on our Consolidated Financial Statements.

In September 2025, the FASB issued ASU 2025-06, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software”(ASU 2025-06”). ASU 2025-06 modernizes the accounting for the costs of internal-use software by removing all references to software development project stages so that the guidance is neutral to different software development methods. This guidance is effective for fiscal years beginning after December 15, 2027 and interim reporting periods within those annual reporting periods. Early adoption is permitted and the amendments in this update may be applied on a retrospective, modified transition, or prospective basis. We are currently evaluating the potential impact that the adoption of this guidance will have on our Consolidated Financial Statements.

We rent certain office space for use in our operations. We assess each of these contracts to determine whether the arrangement contains a lease as defined by ASC842, “Leases.” In order to meet the definition of a lease under ASC842, the contractual arrangement must convey to us the right to control the use of an identifiable asset for a period of time in exchange for consideration. We recognize lease expense on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Our office lease terms are typically from three tofive years and generally contain renewal options. In accordance with ASC842, our lease terms include renewals only to the extent that they are reasonably certain to be exercised. The exercise of these lease renewal options is generally at our discretion. In accordance with ASC842, the lease liability is equal to the present value of the remaining lease payments while the ROU asset is based on the lease liability, subject to adjustment, such as for lease incentives. Our leases donot provide a readily determinable implicit interest rate and therefore, we must estimate our incremental borrowing rate. In determining the incremental borrowing rate, we consider the lease period and our collateralized borrowing rates.

Our lease population at* October 31, 2025* is comprised of operating leases where we are the lessee, primarily for our corporate office and division offices. As allowed by ASC842, we made an accounting policy election tonot record leases with an initial term of12 months or less on our Consolidated Balance Sheets

Lease costs are included in our Consolidated Statements of Operations, primarily in “Selling, general and administrative” homebuilding expenses and payments on our lease liabilities are presented in the table below.

ROU assets are classified within “Prepaid expenses and other assets” on our Consolidated Balance Sheets, while lease liabilities are classified within “Accounts payable and other liabilities.” We recorded a net increase to both ROU assets and lease liabilities of $11.1 million as a result of new leases and lease renewals that commenced during the year ended* October 31, 2025*. We also modified a lease in our Northeast segment to shorten the term during the year ended October 31, 2025, which resulted in a decrease to ROU assets and lease liabilities of $7.7 million. The following table contains additional information about our leases:

Maturities of our operating lease liabilities as of* October 31, 2025* are as follows:

(1)Lease payments include options to extend lease terms that are reasonably certain of being executed and exclude $11.5 million of legally binding minimum lease payments for office leases signed but not yet commenced as of October 31, 2025. The related ROU assets and lease liabilities are not reflected on the Consolidated Balance Sheets.

5. Property and Equipment

Property and equipment balances as of* October 31, 2025 and2024* were as follows:

6. Restricted Cash and Customers’ Deposits

Homebuilding “Restricted cash and cash equivalents” on the Consolidated Balance Sheets totaled $12.6 million and $7.9 million as of* October 31, 2025 and2024*, respectively, which primarily consists of cash collateralizing our letter of credit agreements and facilities (see Note9).

Financial services restricted cash and cash equivalents, which are included in“Financial services” assets on the Consolidated Balance Sheets, totaled $27.7 million and $42.3 million as of* October 31, 2025 and2024*, respectively. Included in these balances were (1) financial services customers’ deposits of $25.4 million and $39.2 million as of* October 31, 2025* and2024, respectively, which are subject to restrictions on our use, and (2) restricted cash under the terms of our mortgage warehouse lines of credit of $2.3 million and $3.1 million as of* October 31, 2025* and2024, respectively.

Homebuilding “Customers’ deposits” are shown as a liability on the Consolidated Balance Sheets. These liabilities are significantly more than the applicable periods’ restricted cash balances because in some states the deposits arenot restricted from use and, in other states, we are able to release the majority of these customer deposits to cash by pledging letters of credit and surety bonds.

7. Mortgage Loans Held for Sale

Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage, LLC (“K. Hovnanian Mortgage”), originates mortgage loans, primarily from the sale of our homes. Such mortgage loans and related servicing rights are generally sold in the secondary mortgage market within a short period of time from origination. Mortgage loans held for sale are collateralized by the underlying property. Loans held for sale are recorded at fair value with changes in the value recognized in the Consolidated Statements of Operations in “Financial services” revenue.

At* October 31, 2025 and2024*, $107.6 million and $145.7 million, respectively, of mortgages held for sale were pledged against our mortgage warehouse lines of credit (see Note8). We* mayincur losses with respect to mortgages that were previously sold that are delinquent and which had underwriting defects, but only to the extent the losses arenot* covered by mortgage insurance or the resale value of the home. The reserves for these estimated losses are included in “Financial services” liabilities on the Consolidated Balance Sheets. At* October 31, 2025 and2024*, we had specific reserves for 9 and 10 identified mortgage loans, respectively, as well as reserves for an estimate of future losses on mortgages sold butnot yet identified to us.

The activity in our loan origination reserves in fiscal2025 and2024 was as follows:

8. Mortgages

Nonrecourse

We have nonrecourse mortgage loans for certain communities totaling $29.5 million and $90.7 million, net of debt issuance costs, at* October 31, 2025 and2024*, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $113.9 million and $249.7 million, respectively. The weighted-average interest rate on these obligations was 7.4% and 8.7% at* October 31, 2025 and2024*, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries.

Mortgage Loans

K. Hovnanian Mortgage finances the origination of mortgage loans through various master repurchase agreements, which are recorded in“Financial services” liabilities on the Consolidated Balance Sheets.

Our secured Master Repurchase Agreement with JPMorgan Chase Bank, N.A. (“Chase Master Repurchase Agreement”) is a short-term borrowing facility that provides up to $50.0 million through its maturity on April 1, 2026. The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly on outstanding advances at an adjusted Secured Overnight Financing Rate (“SOFR”), plus an applicable margin of 2.00% to 2.25%. As of October 31, 2025, there wereno borrowings outstanding under the Chase Master Repurchase Agreement. As of* October 31, 2024*, the aggregate principal amount of all borrowings outstanding under the Chase Master Repurchase Agreement was $7.3 million.

K. Hovnanian Mortgage has another secured Master Repurchase Agreement with Customers Bank (“Customers Master Repurchase Agreement”), which is a short-term borrowing facility that providesup to $100.0 million through its maturity on March 4, 2026.* *The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable daily or as loans are sold to permanent investors on outstanding advances at the current Bloomberg Short Term Bank Yield Index (“BSBY”) rate or SOFR, plus an applicable margin ranging from 2.125% to 4.5% based on the type of loan and the number of days outstanding on the warehouse line. As of October 31, 2025 and 2024, the aggregate principal amount of all borrowings outstanding under the Customers Master Repurchase Agreement was $17.8 million and $78.6 million, respectively.

K. Hovnanian Mortgage has another secured Master Repurchase Agreement with Hinsdale Bank & Trust Company, N.A. (“Hinsdale Master Repurchase Agreement”), which is a short-term borrowing facility that provides up to $50.0 million through its maturity on July 13, 2026. The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly on outstanding advances at the One-Month Term SOFR, plus an applicable margin of 1.75% subject to a floor of 2.75%. As of October 31, 2025 and 2024, the aggregate principal amount of all borrowings outstanding under the Hinsdale Master Repurchase Agreement was $35.9 million and $45.5 million, respectively.

On June 6, 2025, K. Hovnanian Mortgage entered into a secured Master Repurchase Agreement with PlainsCapital Bank (“PlainsCapital Master Repurchase Agreement”). The short-term borrowing facility provides up to $75.0 million through its maturity on May 31, 2026. The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable daily or as loans are sold to permanent investors on outstanding advances at the Daily SOFR, plus an applicable margin of 2.125% to 9.0% based upon the number of days outstanding with the warehouse line, subject to a floor of 5.5%. As of October 31, 2025, the aggregate principal amount of all borrowings outstanding under the PlainsCapital Master Repurchase Agreement was $40.6 million.

The Chase Master Repurchase Agreement, Customers Master Repurchase Agreement, Hinsdale Master Repurchase Agreement and PlainsCapital Master Repurchase Agreement (together, the “Master Repurchase Agreements”) require K. Hovnanian Mortgage to satisfy and maintain specified financial ratios and other financial condition tests. Because of the extremely short period of time mortgages are held by K. Hovnanian Mortgage before the mortgages are sold to investors (generally a period of a few weeks), the immateriality to us on a consolidated basis, the size of the Master Repurchase Agreements, the levels required by these financial covenants, our ability based on our immediately available resources to contribute sufficient capital to cure any default, were such conditions to occur, and our right to cure any conditions of default based on the terms of the applicable agreement, we donot consider any of these covenants to be substantive or material. As of* October 31, 2025*, we believe we were in compliance with the covenants under the Master Repurchase Agreements.

9. Senior Notes and Credit Facilities

Senior secured notes, senior notes and credit facilities balances as of* October 31, 2025* and* October 31, 2024*, were as follows:

(1)On September 25, 2025, K. Hovnanian completed a private placement of $450.0 million aggregate principal amount of 8.0% Senior Notes due April 1, 2031 and $450.0 million aggregate principal amount of 8.375% Senior Notes due October 1, 2033. K. Hovnanian used the net proceeds from the notes issuance, together with cash on hand, to fund (i) the redemption of all of its $430.0 million aggregate principal amount of 11.75% Senior Secured 1.25 Lien Notes due September 30, 2029 and all of its $225.0 million aggregate principal amount of 8.0% Senior Secured 1.125 Lien Notes due September 30, 2028, and (ii) the payoff in full of its $175.0 million Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028.

*(2)On April 30, 2025, K. Hovnanian redeemed the remaining $26.6 million aggregate principal amount of its 13.5% Senior Notes due 2026 for a redemption price of $27.5 million, which included accrued and unpaid interest. *

(3)At October 31, 2025, provides for up to $125.0 million in aggregate amount of senior secured first lien revolving loans. The revolving loans under the revolving credit facility have a maturity of June 30, 2028 and borrowings bear interest, at K. Hovnanian’s option, at either (i) a term SOFR (subject to a floor of 3.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate (subject to a floor of 3.00%) plus an applicable margin of 3.50%. In addition, K. Hovnanian will pay an unused commitment fee on the undrawn revolving commitments at a rate of 1.00% per annum.

As of* October 31, 2025*, future maturities of our borrowings were as follows (in thousands):

(1)Doesnot* include our $125.0 million Senior Secured Revolving Credit Facility under which there wereno borrowings outstanding as of* October 31, 2025*.*

General

Except for K. Hovnanian, the issuer of the notes and borrower under the credit agreement governing our secured revolving credit facility (the“Secured Credit Facility”), our home mortgage subsidiaries, certain of our title insurance subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures, we and each of our subsidiaries are guarantors of the Secured Credit Facility and senior notes outstanding at* October 31, 2025 (*collectively, the “Notes Guarantors”).

The credit agreement governing the Secured Credit Facility and the indentures governing the senior notes (together, the“Debt Instruments”) outstanding at October 31, 2025 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the ability of HEI and certain of its subsidiaries, including K. Hovnanian, to incur (including through exchanges or certain other types of transactions) indebtedness, pay dividends, including on our preferred stock, and make distributions on common and preferred stock, repay/repurchase certain indebtedness prior to its respective stated maturity, repurchase common and preferred stock, make other restricted payments (including investments), sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates. The Debt Instruments also contain customary events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans under the Secured Credit Facility (the“Secured Revolving Loans”) made under the Credit Agreement, dated as of October 31, 2019, as amended, by and among K. Hovnanian, the Company, the other guarantors party thereto, Wilmington Trust, National Association, as administrative agent, and the lenders party thereto (the“Secured Credit Agreement”) or notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Secured Revolving Loans or notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency and, with respect to the Secured Revolving Loans, material inaccuracy of representations and warranties, a change of control, the failure of the documents granting security for the obligations under the Secured Credit Agreement to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the obligations under the Secured Credit Agreement to be valid and perfected. As of October 31, 2025, we believe we were in compliance with the covenants of the Debt Instruments.

Under the terms of our Debt Instruments, we have the right to make certain redemptions and prepayments and, depending on market conditions, our strategic priorities and covenant restrictions,maydo so from time to time. We will also continue to analyze and evaluate our capital structure and explore transactions to strengthen our balance sheet, including those that reduce leverage, interest rates and/or extend maturities, and will seek to do so with the right opportunity. We* may*also continue to make debt or equity purchases and/or exchanges from time to time through tender offers, exchange offers, redemptions, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

Fiscal 2025

On April 30, 2025, K. Hovnanian redeemed the remaining $26.6 million aggregate principal amount of its 13.5% Senior Notes due 2026 (the“13.5% 2026 Notes”)for a redemption price of $27.5 million, which included accrued and unpaid interest. This redemption resulted in a gain on extinguishment of debt of $0.4 million for the fiscal year ended October 31, 2025, including the write-off of unamortized premiums, debt issuance costs and fees. The gain from the redemption is included in the Consolidated Statement of Operations as "(Loss) gain on extinguishment of debt, net".

On September 25,2025, K. Hovnanian issued $450.0 million aggregate principal amount of 8.0% Senior Notes due 2031 (the “2031 Notes”) and $450.0 million aggregate principal amount of 8.375% Senior Notes due 2033 (the “2033 Notes” and, together with the 2031 Notes, the “Notes”). The Notes are guaranteed by the Notes Guarantors.

K. Hovnanian used the net proceeds fromthe Notes issuance, together with cash on hand, to(i)fundthe redemptionon September 25, 2025 of the entire outstanding principal amount of its 11.75% Senior Secured 1.25 Lien Notes due 2029 at a redemption price equal to 100.0% of the principal amount thereof plus the applicable “make-whole” premium, plus accrued and unpaid interest to, but excluding, the redemption date, (ii) deposit with Wilmington Trust, National Association, as trustee under the indenture governing its 8.0% Senior Secured 1.125 Lien Notes due 2028, funds to satisfy and discharge the 1.125 Lien Notes Indenture and the related security documents and to fund the redemption of the entire outstanding principal amount of its 1.125 Lien Notesat a redemption price equal to 104.0% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the redemption date of September 30, 2025 and (iii) repay in full all outstanding loans (the“Secured Term Loans”) under its Senior Secured 1.75 Lien Term Loan Facility due 2028 (the“Secured Term Loan Facility”)at par plus accrued and unpaid interest to, but excluding, the prepayment date.

These transactions resulted in a loss on extinguishment of debt of $33.5 million for the fiscal year ended October 31, 2025, including the write-off of unamortized premiums, debt issuance costs and fees. The loss from the redemption is included in the Consolidated Statement of Operations as“(Loss) gain on extinguishment of debt, net.”

In addition, on September 10, 2025, K. Hovanian and the Notes Guarantors entered into the Fourth Amendment to the Secured Credit Agreement which became effective on September 25, 2025.

Fiscal 2024

On November 15, 2023, K. Hovnanian redeemed in full all of the $113.5 million aggregate principal amount of its 10.0% Senior Secured 1.75 Lien Notes due 2025 for a redemption price of $119.2 million, which included accrued and unpaid interest. This redemption resulted in a gain on extinguishment of debt of $1.4 million for the fiscal year ended October 31, 2024, including the write-off of unamortized premiums, debt issuance costs and fees.

On May 21, 2024, K. Hovnanian and the Notes Guarantors entered into certain exchange agreements, pursuant to which K. Hovnanian, the Notes Guarantors and affiliates of certain investment managers named therein (collectively in respect of the Exchange Agreements, the “Investors”) completed certain private exchanges (collectively, the “Exchanges”) of (i) $64.0 million aggregate principal amount of 13.5%2026 Notes and $21.5 million in cash for $42.5 million aggregate principal amount of additional Secured Term Loans, (ii) $65.2 million aggregate principal amount of 5.0%2040 Notes (as defined below) for $31.4 million aggregate principal amount of additional Secured Term Loans and (iii) $39.6 million aggregate principal amount ofloans under the Senior Unsecured Term Loan Credit Facility due 2027(the“Unsecured Term Loans”) and $10.0 million in cash for $19.6 million aggregate principal amount of additional Secured Term Loans. Following the consummation of the Exchanges, there are $26.6 million aggregate principal amount of 13.5%2026 Notes outstanding, $25.0 million aggregate principal amount of 5.0%2040 Notes outstanding andno Unsecured Term Loans outstanding, in total equaling $51.6 million aggregate principal amount of indebtedness under these instruments outstanding (such amount, the “Remaining Unsecured Notes Amount”). As a result of the Exchanges, all outstanding obligations in respect of principal, interest and fees under the Unsecured Term Loan Facility and all commitments thereunder were terminated.

In connection with the Exchanges, K. Hovnanian, the Notes Guarantors and the Investors entered into the First Amendment to the Secured Term Loan Facility (the “First Amendment” and the Secured Term Loan Facility as amended, the “Amended Secured Term Loan Facility”), providing for, among other things, (i) the issuance of the $93.5 million aggregate principal amount of additional Secured Term Loans described above and (ii) certain other modifications and amendments, primarily related to indebtedness permitted to be incurred by K. Hovnanian and the Notes Guarantors thereunder, including providing that the interest rate on all the then outstanding Secured Term Loans shall be increased in certain circumstances when certain priority secured debt is issued. The Secured Term Loans bore interest at a rate equal to 10.0% per annum (subject to the interest rate increase) and had a maturity date of January 31, 2028, with interest payable in arrears on the last business day of each fiscal quarter. Following consummation of the Exchanges, the total outstanding principal amount of Secured Term Loans under the Secured Term Loan Facility was $175.0 million.

• Secured Obligations*

The Secured Credit Agreement provides for up to $125.0 million in aggregate amount of Secured Revolving Loans to be used for general corporate purposes, upon the terms and subject to the conditions set forth therein. Secured Revolving Loans are to be borrowed by K. Hovnanian and guaranteed by the Notes Guarantors. The revolving loans under the Secured Credit Agreement have a maturity of* June 30, 2028 *and borrowings bear interest, at K. Hovnanian’s option, at either (i) SOFR (subject to a floor of 3.00%) plus anapplicable margin of 4.5% or (ii) an alternate base rate (subject to a floor of 3.00%) plus an applicable margin of 3.5%. In addition, K. Hovnanian pays an unused commitment fee on the undrawn revolving commitments at a rate of 1.0% per annum.

As of October 31, 2025, the collateral securing the Secured Credit Agreement included (1) $283.9 million of cash and cash equivalents, which included $6.3 million of restricted cash collateralizing certain letters of credit (subsequent to such date, fluctuations as a result of cash uses include general business operations and real estate and other investments along with cash inflow primarily from deliveries); (2) $639.8 million aggregate book value of real property, which does not include the impact of inventory investments, home deliveries or impairments thereafter and which may differ from the value if it were appraised; and (3) equity interests in joint venture holding companies with an aggregate book value of $160.9 million.

Unsecured Obligations

The 2031 Notes bear interest at 8.0% per annum and mature on April 1, 2031. The 2033 Notes bear interest at 8.375% per annum and mature on October 1, 2033. Interest on each series of Notes will be payable semi-annually on April 1 and October 1 of each year, beginning on April 1,2026, to holders of record of the applicable series of Notes at the close of business on March 15 or September 15, as the case may be, immediately preceding each such interest payment date. The 2031 Notes are redeemable, in whole or in part, at K. Hovnanian’s option at any time prior to April 1,2028 at 100.0% of their principal amount plus an applicable “make-whole”amount. K. Hovnanian may also redeem some or all of the 2031 Notes at 104.0% of their principal amount commencing on April 1, 2028, at 102.0% of their principal amount commencing on April 1,2029 and at 100.0% of their principal amount commencing April 1,2030. In addition, K. Hovnanian may also redeem up to 40.0% of the aggregate principal amount of 2031 Notes prior to April 1,2028 with the net cash proceeds from certain equity offerings at 108.0% of their principal amount. The 2033 Notes are redeemable, in whole or in part, at K. Hovnanian’s option at any time prior to October 1,2028 at 100.0% of their principal amount plus an applicable“make-whole” amount. K. Hovnanian may also redeem some or all of the 2033 Notes at 104.188% of their principal amount commencing on October 1,2028, at 102.094% of their principal amount commencing on October 1,2029 and at 100.0% of their principal amount commencing on October 1,2030. In addition, K. Hovnanian may also redeem up to 40.0% of the aggregate principal amount of 2033 Notes prior to October 1,2028 with the net cash proceeds from certain equity offerings at 108.375% of their principal amount.

The 5.0% Senior Notes due2040 (the*“5.0%* 2040 Notes”) bear interest at5.0% per annum and mature on* February 1, 2040.Interest on the5.0%* 2040 Notes is payable semi-annually on* February 1 and August 1** of each year to holders of record at the close of business on January 15 or July 15,as the case maybe, immediately preceding each such interest payment date. At any time and from time to time, K. Hovnanian may*redeem some or all of the 5.0%2040 Notes at a redemption price equal to 100.0% of their principal amount.

Other

We have certain stand-alone cash collateralized letter of credit agreements and facilities under which there was a total of $6.2 million and $2.6 million letters of credit outstanding at* October 31, 2025 and October 31, 2024,*respectively. These agreements and facilities require us to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder, which is reflected in “Restricted cash and cash equivalents” on the Consolidated Balance Sheets.

10.** Operating and Reporting Segments**

HEI’s operating segments are components of the Company’s business for which discrete financial information is available and reviewed regularly by the chief operating decision maker, our Chief Executive Officer, to evaluate performance, make resource allocationsand guide strategic decisions. The Chief Executive Officer uses income (loss) before income taxes as the key operating metric used to measure segment profit or loss. Actual income (loss) before income taxes is reviewed monthly against budgeted amounts from the semi-annual financial plans.

We currently have homebuilding operations in 13 states that are aggregated into reportable segments based primarily upon geographic proximity.

HEI’s reportable segments consist of the following three homebuilding segments and a financial services segment.

Homebuilding:

Operations of the homebuilding segments primarily include the sale and construction of single-family attached and detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes in planned residential developments. In addition, from time to time, operations of the homebuilding segments include sales of land. Operations of the financial services segment include mortgage banking and title services provided to the homebuilding operations’ customers. Our financial services subsidiaries donot typically retain or service mortgages that we originate but sell the mortgages and related servicing rights to investors.

Financial information relating to our reportable segments are as follows:

11. Income Taxes

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

The (benefit) provision for income taxes is composed of the following:

The total income tax expense for the years ended October 31, 2025, 2024 and 2023 was $22.2 million, $75.1 million and $50.1 million, respectively. These amounts were primarily attributable to federal and state taxes on income before taxes and non-deductible executive compensation, along with less state net operating losses (“NOL”) available to utilize. These increases were partially offset by energy efficient home tax credits. In fiscal 2025, income tax expense was further reduced by the benefit of deductible losses from our debt extinguishment. Income tax expense for fiscal years 2024 and 2023 includes the favorable impact of releasing state valuation allowances. The federal tax expense for all periods presented was not paid in cash as it was offset by the use of our existing NOL carryforwards.

As of October 31, 2025, we have remaining federal NOL carryforwards of $360.1 million that expire between2031 and2038, and $15.7 million have an indefinite carryforward period. Our total remaining state NOL carryforwards are $1.8 billion which expire between 2027**and 2045, and $62.3 million that have an indefinite carryforward period. Our total remaining tax credit carryforwards of $32.4 million expire between 2027 through 2045.

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted and signed into U.S. law. The OBBBA modifies or extends provisions enacted by the 2017 Tax Cuts and Jobs Act and introduces new provisions including the repeal of our ability to claim energy efficient home credits for homes that close after June 30, 2026. While the OBBBA does not have a material impacton our Consolidated Financial Statements, we will continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and various state agencies.

The Company recognizes deferred income taxes for deferred tax benefits arising from NOL carryforwards and temporary differences between book and tax income which will be recognized in future years as an offset against future taxable income. As part of our analysis, we considered both positive and negative factors that impact profitability and whether those factors would lead to a change in estimate of our deferred tax assets (“DTAs”) that may be realized in the future. At October 31, 2025, the Company has determined that it is more likely than not that sufficient taxable income will be generated in the future to realize its DTAs, net of any state valuation allowances.

Deferred tax assets and liabilities have been recognized on the Consolidated Balance Sheets as follows:

Our effective tax rate varied from the statutory federal income tax rate. The effective tax rate is affected by a number of factors. The sources of these factors were as follows:

At October 31, 2025, and 2024, we do not have any unrecognized tax benefits or open tax positions. Our policy is to accrue interest and penalties on unrecognized tax benefits and include them in the provision for income taxes.

The consolidated federal tax returns have been audited through* October 31, 2024 and these years are closed. We are also subject to various income tax examinations in the states in which we do business. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit, appeal, and in some cases, litigation process. As each audit is concluded, adjustments, if any, are recorded in the period determined. To provide for potential exposures, tax reserves are recorded, if applicable, based on reasonable estimates of potential audit results. However, if the reserves are insufficient upon completion of an audit, there could be an adverse impact on our financial position and results of operations. The statute of limitations for our major tax jurisdictions remains open for examination for tax years *2021 to 2024.

12. Reduction of Inventory to Fair Value

We had 440,469 and 380 communities under development and held for future development or sale at October 31, 2025,2024 and 2023, respectively, which we evaluated for impairment indicators (i.e., those with a projected operating loss). We identified impairment indicators in 12 of our communities with an aggregate carrying value of $75.4 million during the year ended October 31, 2025. The impairment analyses resulted in impairment charges of $21.4 million. We identified impairment indicators infour of our communities with an aggregate carrying value of $41.1 million during the year ended October 31, 2024. The impairment analyses resulted in impairment charges of $10.0 million. We performed an undiscounted future cash flow analysis forone community during the year ended October 31, 2023, forwhich we had recorded an impairment in the prior year. As a result of such analysis, we didnot identify any additional impairment for the community. Our aggregate impairment charges are included within “Inventory impairments and land option write-offs” in the Consolidated Statement of Operations and deducted from inventory.

The following table represents impairments by segment for fiscal 2025 and2024**:

Write-offs of options, engineering and capitalized interest costs are also recorded in “Inventory impairments and land option write-offs” when we redesign communities, abandon certain engineering costs or donot exercise options in various locations because the pro forma profitability isnot projected to produce adequate returns on investment commensurate with the risk. The total aggregate write-offs related to these items were $18.2 million, $1.6 million and $1.5 million for the years ended* October 31, 2025,*2024 and2023, respectively. Occasionally, these write-offs are offset by recovered deposits, sometimes through legal action, which had been written off in a prior period as walk-away costs. Historically, these recoveries havenot been significant in comparison to the total costs written off.

The following table represents write-offs of such costs by segment for fiscal2025,2024 and2023:

13. Per Share Calculations

Basic and diluted earnings per share for the periods presented below were calculated as follows:

There wereno anti-dilutive shares in fiscal 2025 and 2024. Anti-dilutive shares were immaterial in fiscal 2023.

14. Capital Stock

Common Stock

Each share of Class A common stock entitles its holder toone vote per share, and each share of Class B common stock generally entitles its holder toten 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 at aone-to-one conversion rate.

On August 4,2008, the Board of Directors of the Company (the“Board*”*) adopted a shareholder rights plan (the “Rights Plan”), which was amended on January 11, 2018, January 18, 2021 and January 11, 2024, designed to preserve shareholder value and the value of certain tax assets primarily associated with NOL carryforwards and built-in losses under Section 382 of the Internal Revenue Code. Our ability to use NOLs and built-in losses would be limited if there was an “ownership change” under Section 382. This would occur if shareholders owning (or deemed under Section 382 to own)5% or more of our stock increase their collective ownership of the aggregate amount of our outstanding shares by more than 50 percentage points over a defined period of time. The Rights Plan was adopted to reduce the likelihood of an “ownership change” occurring as defined by Section 382. Under the Rights Plan, one right was distributed for each share of Class A common stock and Class B common stock outstanding as of the close of business on August 15,2008. Effective August 15,2008, if any person or group acquires 4.9% or more of the outstanding shares of Class A common stock without the approval of the Board, there would be a triggering event causing significant dilution in the voting power of such person or group. However, existing shareholders who owned, at the time of the Rights Plan’s initial adoption on August 4, 2008,4.9% or more of the outstanding shares of Class A common stock will trigger a dilutive event only if they acquire additional shares. The approval of the Board’s decision to adopt the Rights Plan may be terminated by the Board at any time prior to the Rights being triggered. The Rights Plan will continue in effect until August 14,2027, unless it expires earlier in accordance with its terms. The approval of the Board’s decision to initially adopt the Rights Plan and Amendment Nos.1,2 and 3 thereto were approved by shareholders. Our shareholders also approved an amendment to our Certificate of Incorporation to restrict certain transfers of Class A common stock in order to preserve the tax treatment of our NOLs and built-in losses under Section 382 of the Internal Revenue Code. Subject to certain exceptions pertaining to pre-existing 5% shareholders and holders of Class B common stock, the transfer restrictions in our Restated Certificate of Incorporation generally restrict any direct or indirect transfer (such as transfers of our stock that result from the transfer of interests in other entities that own our stock) if the effect would be to (i) increase the direct or indirect ownership of our stock by any person (or public group) from less than 5% to 5% or more of our common stock; (ii) increase the percentage of our common stock owned directly or indirectly by a person (or public group) owning or deemed to own 5% or more of our common stock; or (iii) create a new “public group” (as defined in the applicable U.S. Treasury regulations). Transfers included under the transfer restrictions include sales to persons (or public groups) whose resulting percentage ownership (direct or indirect) of common stock would exceed the 5% thresholds discussed above, or to persons whose direct or indirect ownership of common stock would by attribution cause another person (or public group) to exceed such threshold.

On September 1, 2022, the Board authorized a repurchase program for up to $50.0 million of our Class A common stock. On December 18, 2024, the Board authorized an incremental increase to our repurchase program and on April 11, 2025, the Board authorized another incremental increase to our repurchase program, such that, inclusive of any amounts remaining under the existing repurchase authorization, as of April 11, 2025, we were authorized to repurchase up to$30.6 million of our Class A common stock. As of October 31, 2025, $26.4 million of our Class A common stock is available for repurchase under the share repurchase program. Under the program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual dollar amount repurchased will depend on a variety of factors, including legal requirements, price, future tax implications and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.

Preferred Stock

On* July*12,* 2005, we issued 5,600 shares of 7.625% Series A preferred stock, with a liquidation preference of $25,000 per share. Dividends on the Series A preferred stock arenot cumulative and are payable at an annual rate of 7.625%. The Series A preferred stock isnot convertible into the Company’s common stock and is redeemable, in whole or in part, at our option at the liquidation preference of the shares. The Series A preferred stock is traded as depositary shares, with each depositary share representing 1/1000th of a share of Series A preferred stock. The depositary shares are listed on the NASDAQ Global Market under the symbol “HOVNP.” During each of fiscal 2025,2024 and 2023*we paid dividends of $10.7 million on the Series A preferred stock.

Retirement Plan

We have established a tax-qualified, defined contribution savings and investment retirement plan (“401(k) plan”). All associates are eligible to participate in the retirement plan, and employer contributions are based on a percentage of associate contributions and our operating results.401(k) plan expenses were $10.0 million, $8.8 million and $8.2 million for the years ended* October 31, 2025,*2024 and2023, respectively.

Treasury Stock

During the year ended* October 31, 2025,we repurchased 257,908 shares of Class A common stock under our stock repurchase program, with a market value of$30.1 million, or$116.70 per share. During the year ended October 31, 2024,we repurchased 188,800 shares of Class A common stock under our stock repurchase program, with a market value of $26.5 million, or $140.31 per share.* During the year ended October 31, 2023, we repurchased 118,478 shares of Class A common stock under our stock repurchase program, with a market value of $4.8 million, or $40.51 per share. The repurchased shares were added to Treasury stock" on the “Consolidated Balance Sheets”.*****

15. Stock-Based Compensation Plans

We have stock incentive plans for certain officers, key employees and directors that are approved by a committee appointed by the Board or its delegate. As of* October 31, 2025,*we had 0.3 million shares authorized and remaining for future issuance under our stock incentive plans. Based on the terms of our stock incentive plans, awards that are forfeited are available to us for future grants.

Stock Options

There have beenno stock option grants during fiscal years2025, 2024 or2023. The exercise price of all stock options is at least equal to the fair market value of an underlying share of our Class A common stock on the date of the grant. The fair value of each stock option is estimated using the Black-Scholes option-pricing model. Stock options granted to officers and associates generally vest infour equal installments on thesecond, third, fourth andfifth anniversaries of the date of the grant. Non-employee directors’ stock options vest inthree equal installments on thefirst, second andthird anniversaries of the date of the grant. All stock options expire on thetenth anniversary from the grant date.

The following table summarizes stock option activity as ofOctober 31, 2025:

The total intrinsic value of stock options exercised during fiscal2025, 2024 and 2023 was$0.2 million,$1.4 millionand $0.2 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price.

Based on the fair value at the time of grant, the per share weighted-average fair value of stock options that vested in fiscal2024 and2023 was $9.50 and $6.29, respectively. All outstanding stock options were vested as of October 31, 2024.

RSUs and Performance Units

RSUs are measured based upon the fair value of a share of our Class A common stock on the date of grant. Shares underlying RSUs granted to officers and associates generally vest infour equal installments on thefirst, second, third, andfourth anniversaries of the grant date. During fiscal year2025, each of oursix existing non-employee directors were granted RSUs subject to atwo-year post-vesting holding period. Generally, participants aged 60 years or older, or aged 58 with 15 years of service, are eligible to vest in their awards on an accelerated basis upon their retirement.

Grants of performance share units (“PSUs”) and the stock portion of long-term incentive plans (“LTIPs”) (each discussed below) are also awarded as compensation.

The following table summarizes nonvested time-based RSU share activity as of* October 31, 2025*:

The following table summarizes nonvested performance-based LTIP and PSU share activity as of October 31, 2025**:

(1)Includes 9,043 time-based vested share awards and 288,560 performance-based vested share awards which were deferred andnot* yet issued as of*October 31, 2025.

LTIP awards include share adjustments for the difference between target performance metrics at the time of grant and the final performance outcome. Share adjustments are reflected in the “Granted” line above at the time the performance is finalized. Each of the 2025,2024 and 2023 LTIP awards are subject to cliff vesting at the end of the performance period.

The fair value of LTIP and PSUs (discussed below) is determined using the Finnerty model, which uses an arithmetic average strike, put option. The strike price is based on the predetermined period average value of the underlying asset. The following assumptions were used for the2025 LTIP grants: historical volatility factor of 60.51% based on the expected market price of our Class A common stock for thetwo-year period ending on the valuation date, concluded stock price assumption of 4.14% equal to the continuously compoundedtwo-year yield and a dividend yield ofzero. The following assumptions were used for the2024 LTIP grants: historical volatility factor of 66.65% based on the expected market price of our Class A common stock for thetwo-year period ending on the valuation date, concluded stock price assumption of 4.32% equal to the continuously compoundedtwo-year yield and a dividend yield ofzero. The following assumptions were used for the2023 LTIP grants: historical volatility factor of 75.29% based on the expected market price of our Class A common stock for thetwo-year period ending on the valuation date, concluded stock price assumption of 4.19% equal to the continuously compoundedtwo-year yield and a dividend yield ofzero.

PSUs granted in fiscal 2020 vest infour equal installments commencing on thesecond, third, fourth andfifth anniversary of the grant date, except thatno portion of the award will vest unless the Board determines that the Company achieved specified earnings goals. PSUs granted subsequent to fiscal 2020 are subject to cliff vesting on thethird year after the grant date. The following assumptions were used for the 2025 PSU grants: historical volatility factor of 63.51% based on the expected market price of our Class A common stock for thetwo-year period ending on the valuation date, concluded stock price assumption of 3.92% equal to the continuously compoundedtwo-year yield and a dividend yield ofzero. The following assumptions were used for the 2024 PSU grants: historical volatility factor of 64.61% based on the expected market price of our Class A common stock for thetwo-year period ending on the valuation date, concluded stock price assumption of 4.62% equal to the continuously compoundedtwo-year yield and a dividend yield of zero. The following assumptions were used for the 2023 PSU grants: historical volatility factor of 66.66% based on the expected market price of our Class A common stock for thetwo-year period ending on the valuation date, concluded stock price assumption of 4.54% equal to the continuously compoundedtwo-year yield and a dividend yield ofzero.

The total grant date fair value of RSU and performance unit awards granted during fiscal2025, 2024 and2023 was $12.5 million, $14.8 million and*$10.4* million, respectively. The total fair value of these awards vested during fiscal2025, 2024 and2023 was $15.4 million, $21.2 million and $25.2 million, respectively.

During the year-ended* October 31, 2025 we issued 48,171 RSUs,45,553 PSUs and 47,936 LTIP shares. As of October 31, 2025*, there was $11.7 million of unrecognized stock-based compensation, which is comprised of unrecognized expenses for RSUs, PSUs, and the stock portion of LTIPs. The cost is expected to be recognized over a weighted-average period of 2.5 years.

Stock-Based Compensation Expense

For the years ended* October 31, 2025,*2024 and2023, stock-based compensation expense for RSUs, PSUs, and the stock portion of LTIPs was $16.7 million ($12.3 million post tax), $25.3 million ($19.3 million post tax) and $14.2 million ($11.4 million post tax), respectively. Stock option compensation expense was not material for any period presented.

16. Warranty Costs

General liability insurance for homebuilding companies and their suppliers and subcontractors is exceedingly difficult to obtain. The availability of general liability insurance is limited due to a decreased number of insurance companies willing to underwrite for the industry. In addition, those few insurers willing to underwrite liability insurance have significantly increased the premium costs. To date, we have been able to obtain general liability insurance but at higher premium costs with higher deductibles. Our subcontractors and suppliers have advised us that they have also had difficulty obtaining insurance that also provides us coverage. As a result, we have an owner-controlled insurance program for certain of our subcontractors whereby the subcontractors pay us an insurance premium (through a reduction of amounts we would otherwise owe such subcontractors for their work on our homes) based on the risk type of the trade. We absorb the liability associated with their work on our homes as part of our overall general liability insurance atno additional cost to us because our existing general liability and construction defect insurance policy and related reserves for amounts under our deductible covers construction defects regardless of whether we or our subcontractors are responsible for the defect. For the years ended* October 31, 2025 and2024*, we received $5.2 million and $4.7 million, respectively, from subcontractors related to the owner controlled-insurance program, which we accounted for as reductions to inventory.

The following table represents additions and charges to the warranty reserve and general liability reserve for fiscal 2025* and2024*:

17. Transactions with Related Parties

During fiscal years 2025,* *2024 and2023, an engineering firm owned by Tavit Najarian, a relative of Ara K. Hovnanian, our Chairman of the Board and Chief Executive Officer, and Alexander Hovnanian, our President, provided services to the Company totaling $0.7 million, $1.3 million and $1.3 million, respectively. Neither the Company, nor Ara K. Hovnanian nor Alexander Hovnanian has a financial interest in the relative’s company from whom the services were provided.

18. Commitments and Contingent Liabilities

We are involved in litigation, claims and other proceedings arising in the ordinary course of business. The significant majority of our litigation matters are related to construction defect claims. Our estimated losses from construction defect litigation matters, if any, are included in our construction defect reserves. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of financial position, results of operations or cash flows.

In December 2020, the New Jersey Department of Environmental Protection (“NJDEP”) and the Administrator of the New Jersey Spill Compensation Fund (the “Spill Fund”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Union County against Hovnanian Enterprises, Inc., in addition to other unrelated parties, in connection with contamination at Hickory Manor, a residential condominium development. Alleged predecessors of certain defendants had used the Hickory Manor property for decades for manufacturing purposes. In 1998(when one of our affiliates purchased the property and assumed control of its remediation), NJDEP confirmed that groundwater at this site was impacted from an off-site source. The site was later remediated, resulting in the NJDEP issuing an unconditional site-wide No Further Action determination letter (“NFA”) and Covenant Not to Sue in 1999. Subsequently, one of our affiliates was involved in redeveloping the property as a residential community. The complaint asserts claims under the New Jersey Spill Act and other state law claims and alleges that remediation was not properly completed, inaccurate reports were provided to NJDEP when the NFA was issued, and the NJDEP and the Spill Fund have incurred over $5.3 million since 2009 to investigate vapor intrusion at the development and to install vapor mitigation systems. Among other things, the complaint seeks recovery of the costs incurred, an order that defendants perform additional required remediation and disgorgement of profits on our affiliate’s sales of the units in the development. Discovery has commenced. Hovnanian Enterprises, Inc. intends to defend these claims vigorously.

19. Variable Interest Entities

ASC 810 requires the assessment of whether an entity is a VIE and, if so, if we are the primary beneficiary at the inception of the entity or at a reconsideration event. We are required to consolidate a VIE if we determine that we have a controlling financial interest in the VIE. Controlling financial interests will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Our variable interest in VIEs are in the form of joint ventures and land and lot option purchase contracts.

We examine specific criteria and use our judgment when determining if we are the primary beneficiary of a VIE and have a controlling financial interest. The significant factors we consider in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality between us and the other partner(s) and contracts to purchase property from VIEs.

We also enter into land and lot option purchase contracts to procure land or lots for the construction of homes. Under these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, many of the option deposits are not refundable at the Company’s discretion. Under the requirements of ASC 810, certain option purchase contracts may result in the creation of a VIE that owns the land parcel under option.

As a result of our analyses, we have concluded we are not the primary beneficiary and do not have a controlling financial interest of any of the land or lots under option purchase contracts at either October 31, 2025 or 2024.

At* October 31, 2025 and2024,* the Company had total cash deposits amounting to $333.2 million and $264.8 million, respectively, to purchase land and lots with a total purchase price of $2.8 billion and $3.0 billion, respectively. The maximum exposure to loss with respect to our land and lot options is limited to the deposits plus any pre-development costs invested in the property, although some deposits are refundable at our request or refundable if certain conditions arenot met.

Our investments in homebuilding and land development joint ventures consist of equity interests that, in total, provide us with partner investment returns and management fees. All major decision making in our joint ventures is shared among all partner(s). In particular, business plans and budgets are generally required to be unanimously approved by all partner(s). Usually, management and other fees earned by us are nominal and believed to be at market and there is no significant economic disproportionality between us and our partner(s). As a result of our analyses, we have concluded we are not the primary beneficiary and do not have a controlling financial interest of any of our homebuilding and land development joint ventures at either October 31, 2025 or 2024.

20. Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

We enter into homebuilding and land development joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile, leveraging our capital base and enhancing returns on capital.

During thesecond quarter of fiscal2024, we contributed 11 communities we owned, including three active selling communities, to a new unconsolidated joint venture for $53.8 million of net cash.

During thethird quarter of fiscal2024, we assumed control ofone of our unconsolidated joint ventures after the partner received their final cash distribution. We consolidated the remaining assets and liabilities that were in the unconsolidated joint venture at fair value on the date of distribution. Upon consolidation, we recorded a gain of $45.7 million in “Other (income) expense, net."

During the first quarter of fiscal 2025, we contributed four active selling communities we owned toone new unconsolidated joint venture for $20.8 million of net cash and a $50.0 million note receivable, resulting in a gain of $22.7 million, which was recorded in “Other (income) expense, net.”

During the second half of fiscal 2025, we contributed five communities in planning to a new unconsolidated joint venture for $17.9 million of net cash.

During the fourth quarter of fiscal 2025, weassumed control of one of our unconsolidated joint ventures after the partner received their final cash distribution. We consolidated the remaining assets and liabilities that were in the unconsolidated joint venture at fair value on the date of distribution. We also received a distribution oftwo active selling communities from anunconsolidated joint venture and recorded these distributions at fair value. Thetotal gain recorded from the two transactions was $18.9 million, which was recorded to “Other (income) expense, net."

The tables set forth below summarize the combined financial information related to our unconsolidated homebuilding and land development joint ventures that are accounted for under the equity method:

As of* October 31, 2025 and2024,* we had outstanding advances to unconsolidated joint ventures of $2.6 million and $2.4 million, respectively. These amounts were included in “Accounts payable and accrued liabilities” in the tables above. In some cases, our net investment in unconsolidated joint ventures is less than our proportionate share of the equity reflected in the table above because of the differences between asset impairments recorded against our unconsolidated joint venture investments and any impairments recorded in the applicable unconsolidated joint venture. During theperiods presented, we did not recognize any write-downs related to our investments in unconsolidated joint ventures.

The reason “Our share of net income” is higher or lower than the “Joint venture net income” in the tables above is a result of our varying ownership percentages in each investment. For the years ended* October 31, 2025 and2024,* we had investments insix unconsolidated joint ventures for both periods and our ownership in these joint ventures ranged from 20% to over 50% for both periods. Therefore, depending on mix, if the unconsolidated joint ventures in which we have higher sharing percentages are more profitable than our other unconsolidated joint ventures, that results in us having a higher overall percentage of income in the aggregate than would occur if all joint ventures had the same sharing percentage; conversely, if the unconsolidated joint ventures in which we have lower sharing percentages are more profitable than our other unconsolidated joint ventures, that results in us having a lower overall percentage of income in the aggregate than would occur if all joint ventures had the same sharing percentage. For the year ended October 31, 2025,“Our share of net income” was less than the“Joint venture net income” due totwo unconsolidated joint ventures with increased income during the period for which we currently recognize a lower profit sharing percentage based on the joint venture agreements, partially offset byone unconsolidated joint venture with increased losses during the period for which the book value of our investment iszero and therefore we did not recognize our share of the losses. For the year ended* October 31, 2024, “Our share of net income” was less than the “Joint venture net income” due tofive* unconsolidated joint ventures with increased income during the period for which we currently recognize a lower profit-sharing percentage based on the joint venture agreements, partially offset byone unconsolidated joint venture with increased income during the period for which we recognized a higher profit-sharing percentage based on the joint venture agreements.

To compensate us for the administrative services we provide as the manager of certain unconsolidated joint ventures, we receive a management fee based on a percentage of the applicable unconsolidated joint venture’s revenue. These management fees, which totaled $25.3 million, $19.5 million and $16.3 million for the years ended* October 31, 2025,*2024 and2023, are recorded in “Selling, general and administrative” homebuilding expenses in the Consolidated Statements of Operations.

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing. For some of our unconsolidated joint ventures, obtaining financing was challenging, therefore, some of our unconsolidated joint ventures are capitalized only with equity. Any unconsolidated joint venture financing is on a nonrecourse basis, with guarantees from us limited only to performance and completion of development, environmental warranties and indemnification, standard indemnification for fraud, misrepresentation and other similar actions, including a voluntary bankruptcy filing. In some instances, the unconsolidated joint venture entity is considered a VIE due to the returns being capped to the equity holders; however, in these instances, we have determined that we arenot the primary beneficiary, and therefore we donot consolidate these entities.

21. Fair Value of Financial Instruments

We use a fair-value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level1: Fair value determined based on quoted prices in active markets for identical assets.

Level2: Fair value determined using significant other observable inputs.

Level*3:*Fair value determined using significant unobservable inputs.

Our financial instruments measured at fair value on a recurring basis are summarized below:

(1)The aggregate unpaid principal balance was $112.1 million and $149.4 million at October 31, 2025 and2024*, respectively.*

Fair value of mortgage loans held for sale is based on independent quoted market prices, where available, or the prices for other mortgage loans with similar characteristics.

The financial services segment had a pipeline of loan applications in process of $404.4 million at* October 31, 2025*. Loans in process for which interest rates were committed to the borrowers totaled $50.2 million as of* October 31, 2025*. Substantially all of these commitments were for periods of 60 days or less. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments donot necessarily represent future cash requirements.

In addition, the financial services segment uses investor commitments and forward sales of mandatory MBS to hedge its mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS forward commitments, option contracts with investment banks, federally regulated bank affiliates and loan sales transactions with permanent investors meeting the segment’s credit standards. Our risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and option contracts. At* October 31, 2025*, we hadno open mandatory investor commitments to sell MBS.

Changes in fair value that are included in income are shown by financial instrument and financial statement line item, below:

Assets measured at fair value on a nonrecurring basis are those assets for which we have recorded valuation adjustments and write-offs during the years ended October 31, 2025 and 2024, respectively. The assets measured at fair value on a nonrecurring basis are all within our homebuilding operations and are summarized below:

We estimate the fair value of each impaired community by determining the present value of the estimated future cash flows at a discount rate commensurate with the risk of the respective community. For the year ended October 31, 2025, our discount rates used to determine the fair value ranged from 16.5% to 20.0%. We recorded inventory impairments, which are included in the Consolidated Statements of Operations as “Inventory impairments and land option write-offs” and deducted from inventory of $21.4 million and $10.0 million for the years ended October 31,2025 and 2024, respectively. We didnot have any assets measured at fair value on a nonrecurring basis during the year ended October 31, 2023 (see Note 12).

The fair value of our cash equivalents, restricted cash and cash equivalents and customers’ deposits approximates their carrying amount, based on Level1 inputs.

The fair value of each series of our notes and credit facilities are listed below. Level2 measurements are estimated based on recent trades or quoted market prices for the same issues or based on recent trades or quoted market prices for our debt of similar security and maturity to achieve comparable yields. Level3 measurements are estimated based onthird-party broker quotes or management’s estimate of the fair value based on available trades for similar debt instruments. As shown in the table below, our 8.0% Senior Notes due 2031,8.375% Senior Notes due 2033 and 5.0% Senior Notes due 2040 were a Level2 measurement at * October 31, 2025** *due to recent trades for the same notes.

The Senior Secured Revolving Credit Facility isnot included in the above tables because there wereno borrowings outstanding thereunder as of* October 31, 2025 and2024*.

22. Subsequent Events

During the first quarter of fiscal 2026, we assumed control ofone of our unconsolidated joint ventures after the partner received their final cash distribution. We will consolidate the remaining assets and liabilities from eight active selling communities that were in the unconsolidated joint venture at fair value on the date of distribution.