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KB Home reports loss

March 28, 2009|Peter Y. Hong

Westwood-based developer KB Home reported its first year-over-year increase in home orders in more than three years Friday, leading to a smaller-than-expected first-quarter loss.

Chief Executive Jeffrey Mezger also said home prices in Southern California may have hit their low point. "In places like Southern California, prices have stabilized. Perhaps there's a floor now" in the region, Mezger told analysts in a conference call.

After the news, KB Home stock rose 89 cents to close at $15.05. Through Thursday, the company's shares had dropped 45% in the last year.

For the quarter that ended Feb. 28, the company reported a net loss of $58.1 million, or 75 cents a share. The result was a fraction of the $268.2-million, or $3.47-a-share, loss posted in the same period a year earlier.

Revenue fell 61% to $307.4 million.

The builder's results beat estimates by analysts polled by Bloomberg for a median loss of 95 cents a share.

Orders for homes were up 26% from the prior year, the first year-over-year increase since KB Home's fourth quarter in its fiscal year ended Nov. 30, 2005.

Mezger credited the rise in orders to smaller, lower-priced homes the company has touted in recent months, but KB Home has been cutting the size of its homes since at least early 2008.

A general rise in home affordability also helped sales, the KB Home chief said. "The median home sale price is now less, relative to income levels, than it has been in 40 years. In addition, mortgage rates have fallen to all-time lows," Mezger said.

News of KB Home's sales increase coincided with more bullish housing market talk Friday by Fannie Mae interim CEO John A. Koskinen.

"Mortgage rates, if they go down at all further, it's going to be incremental," Koskinen told reporters Friday after a meeting with President Obama and top bank executives, according to Bloomberg News. "Interest rates are probably close to bottoming out, and therefore we are telling people" to buy a house now.

The 30-year fixed mortgage rate fell last week from 4.98% to 4.85%, the lowest on record, Freddie Mac said Thursday.

"This is more attractive than they've ever been and about as attractive as they're ever going to be," Koskinen said of mortgage rates. "We are going to begin to see a lot of home purchases by people on the sidelines who are suddenly discovering, 'Hey, I can afford a house.'

"I think you will see a return of confidence in the housing market that we haven't had in the last couple years," he said.

Sharp overall home price declines in Southern California have driven sales up in the region, but those sales have mainly been previously foreclosed properties. New-home sales continue to be sluggish in the region.

Despite the upbeat news, the outlook for the nationwide housing market remains tough, Mezger said. "I've tempered my comments about where the markets are headed because I am concerned about the overall economy and the job loss, and a lot of the media is jumping to 'OK, we're calling a bottom.' We're not calling a bottom yet. We think it's going to be difficult for a while," he said.


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