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Rosy Sales Report Buoys Stocks of Home Builders

The government says the number of houses sold grew 9.4% in August, the biggest gain since 2000.

September 28, 2004|Annette Haddad | Times Staff Writer

KB Home paced a rally in home builder shares Monday after the government reported that consumers snapped up newly built houses last month at the fastest pace in nearly four years.

Los Angeles-based KB Home jumped $2.02 to a record $85.54 on the New York Stock Exchange. The shares have soared nearly $22, or 34%, since Aug. 12.

A better-than-expected report from the Commerce Department showed that U.S. new-home sales jumped 9.4% in August, which was the biggest gain since the end of 2000.

The numbers buoyed other major Southern California builders. Ryland Group rose $1.50 to $93.15, Standard-Pacific gained $1.72 to $56.50 and William Lyon Homes surged $2.70 to $90, all on the NYSE.

Single-family home sales rose to a 1.18-million annual pace last month after declining 7.3% in July. Since the beginning of summer, mortgage rates have fallen to their lowest levels in four months, making it easier for home buyers, particularly those at the entry level, to qualify for a loan even as home prices have moved higher.

In August, the rate for a 30-year fixed-rate mortgage averaged 5.82%, compared with an average of 6.2% a year earlier, according to the Mortgage Bankers Assn.

As of last week, the rate for a 30-year fixed-rate mortgage had fallen to 5.66% from 5.68% the week before. Meanwhile, the average rate for a one-year adjustable-rate mortgage -- an increasingly popular method for financing a home loan -- rose to 3.89% from 3.86%.

"What's helping KB and the other builders is the dominance of the first-time buyers," said Greg Gieber, an analyst with A.G. Edwards & Sons. "Those buyers are still actively in the market."

KB Home has built its business targeting just such consumers and is the industry leader in entry-level home building, which makes up about 40% of its sales.

Yet KB has been vigorously expanding its business into higher-end housing and has broadened its areas of operations from 19 of the top U.S. housing markets in 2002 to 36 this year. KB builds houses in California, the Southwest and Southeast.

"Our sales have been fairly solid for the last few months," said Jeffrey Mezger, KB's executive vice president and chief operating officer. "The dynamics are very positive for us."

Last week, KB raised its earnings guidance for this year and next, citing an improving economy and its own strong financial performance. The company's backlog -- a key measure of future sales and earnings -- was the highest in its history at the end of its fiscal third quarter on Aug. 31, rising 42%, and the number of units on backlog rose 32%.

In August, the nationwide average sales price for a new home was $267,000, the Commerce Department said. Buyers had plenty of inventory to choose from, with 404,000 new homes for sale at the end of August, the most since October 1979. In California, inventory is much tighter.

The West was the hottest market for new-home sales, posting an increase of 19.5%. The South had the second-greatest gain in sales, with 12.6%. Sales in the Northeast rose 6.1% but dropped 8.3% in the Midwest.

The fact that Monday's data was better than anticipated, Gieber said, "is positive for the entire industry."

But, he said, "you have to ask the question: What's going to happen down the road with housing demand?"

Gieber is forecasting 1.17 million new-homes sales in 2004, which would surpass last year's record 1.08 million. His forecast is for 1.05 million in 2005.

Mezger said KB was "not overly concerned" about the market cooling or rate moving higher. People, he said, "will still need a home."

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