KB Home building smaller houses in bid to lift sagging sales
The company, which posted its seventh straight quarterly loss, is trying to attract buyers with new 1,230 square-foot homes selling for $200,000 in the Inland Empire and other high foreclosure areas.
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 from the same period a year earlier.
The company's shares were up 40 cents Friday, to $21.56 a share. 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 to a year earlier. Revenues were $681.6 million for the quarter, down from $1.53 billion in the year-earlier period.
KB Chief Executive Jeffrey Mezger said 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 has begun a new strategy in the Inland Empire and a few other areas across the nation in which it plans to expand its developments. The company has been selling smaller houses at lower prices in areas like 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.
peter.hong@latimes.com
