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Signs of life in the home-building industry

A large-scale development in Irvine and profits posted by some builders bring hope for a turnaround, but the industry's outlook remains fragile.

January 13, 2010|By Alejandro Lazo

To compete with scaled-back consumer sentiment, KB Home launched a new design of smaller, more affordable homes in March that it called its Open Series. In KB Home's conference call with analysts Tuesday, Mezger said the company would continue to build homes made to order -- that is, with buyers lined up -- but added that it was considering putting up some partially built houses in some select communities. That would speed up the construction process and potentially allow more consumers to take advantage of the home-buyer tax credit before its April expiration, he said.

Mezger also told analysts the company was increasing prices where it could. "It's the same product and you push a thousand here and thousand there and get what you can," he said. Home prices and sales picked up steadily during the second half of 2009 in Southern California, and some economists have said the worst is over. Yet whether the nascent recovery will translate into wide-scale construction in the region remains doubtful.

"Economically, we don't need any more new homes," said John Burns, an independent Irvine economist who follows home builders.

Irvine, in particular, is a unique market. In the master-planned community designed by the Irvine Co., jobs are steady and the school system is highly rated -- and real estate there remains strong. The company is hoping that when it begins to sell homes in the project, called the 2010 New Home Collection, at the end of this month, its gamble will pay off.

"The goal is to go meet what we consider the next market for new-home buying," said Daniel Young, president of Irvine Co. Community Development. "We believe the marketplace for homes has sufficiently cleared and that people want to have a choice of either a resale home or a new home."

"All of the data suggests our timing is just right."

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