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KB Home is thinking small after wider loss

CONSTRUCTION

September 27, 2008|Peter Y. Hong | Times Staff Writer

As California's biggest builder of new homes posted its seventh straight quarterly loss Friday, Westwood-based KB Home said it was trying to boost sales by building small, lower-priced houses instead of the larger ones that had sustained the company during the housing boom.

KB Home lost $144.7 million from July through September, or $1.87 a share, compared with a net loss of $35.6 million, or 46 cents a share, for the third quarter of 2007.

The company's shares were up 40 cents Friday, to $21.56. The stock has fallen 28% from its 52-week high.

The loss exceeded analysts' estimates and came as sales of the company's homes fell 56% in the quarter compared with a year earlier. Revenue was $681.6 million for the quarter, down from $1.53 billion in the year-earlier period.

KB Chief Executive Jeffrey Mezger said that foreclosed houses being sold at fire-sale prices were continuing to pull home prices down, and that parts of the country that have yet to see the dramatic price declines experienced by California and other Western states were likely to fall next.

Those previously stable areas include Charlotte and Raleigh, N.C., and Austin and San Antonio, Texas, where "sales rates are off, and I think you'll see those markets soften," Mezger said.

Mezger said KB Home had begun a new strategy in the Inland Empire and a few other areas across the nation in which it planned to expand its developments. The company has been selling smaller houses at lower prices in areas such as Beaumont in Riverside County.

Mezger said the company had to shift to smaller, cheaper houses to compete with foreclosed houses flooding markets such as the Inland Empire.

"The challenge is how do you get your pricing down on new product so you can make money at these lower levels," Mezger said.

The company last year shifted from building 3,400-square-foot homes selling for $450,000 to 2,400-square-foot homes selling for $300,000.

"That worked for a time, but the market continued to move away from us," Mezger said.

Now, KB Home is building three-bedroom, 1,230-square-foot homes selling for $200,000 in the Inland Empire, Mezger said.

Other home builder stocks closed higher Friday, including Calabasas-based Ryland Group Inc., which rose $1.18 to $27.88.

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peter.hong@latimes.com

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