Weekly Real Estate News
Summary
KB Home reported third-quarter net income of $65.3 million, down from $109.8 million a year earlier, as net orders fell 12% and housing gross margin compressed. Executives said housing conditions have weakened since June as higher mortgage rates pressure affordability and buyer confidence.
KB Home’s third-quarter profit fell sharply from a year earlier as elevated mortgage rates, weaker affordability and cautious buyers continued to reshape the new-home market, even as the builder posted sequential improvement and rebuilt its backlog.
The Los Angeles-based builder reported $65.3 million of net income for the quarter ended Aug. 31, down from $109.8 million a year earlier. Diluted earnings per share fell to $1.05 from $1.61. Revenue totaled $1.30 billion.
Executive Chairman Jeffrey Mezger said housing conditions have weakened since KB Home’s June earnings report, citing higher mortgage rates, geopolitical uncertainty and broader economic headwinds that have made prospective buyers more cautious.
The results add another major builder’s operating data to a housing market already showing weaker buyer traffic, heavier incentives and renewed pressure from borrowing costs.
Orders fell, but backlog turned higher
KB Home took 2,604 net orders during the quarter, down 12% from a year earlier. Monthly net orders per community fell to 3.1 from 3.8, while the cancellation rate increased to 18% of gross orders from 17%.
There was one notable countertrend: ending backlog increased for the first time in four years. The number of homes in backlog rose 2% to 4,398, while backlog value increased 3% to $2.05 billion.
KB Home also continued expanding its selling footprint. Average community count increased 8% to 279 and ending community count rose 5% to 277.
President and CEO Robert McGibney said the company has returned to a predominantly Built to Order model, with those homes accounting for nearly three-quarters of third-quarter deliveries. The company said that shift contributed to sequential improvement in housing gross margin.
Margins remain under pressure
Homebuilding operating income fell to $67.1 million from $131.2 million a year earlier. The homebuilding operating margin declined to 5.2% from 8.1%.
Housing gross margin was 16.5%, down from 18.2%. Excluding inventory-related charges, it was 16.8% compared with 18.9% a year earlier. KB Home attributed the decline primarily to continued pricing pressure, higher relative land costs and reduced operating leverage.
For the first nine months of the fiscal year, revenue fell to $3.49 billion from $4.54 billion. Deliveries declined 19% to 7,497 homes, while the average selling price dropped 5% to $462,900. Nine-month net income fell to $126.1 million from $327.3 million.
The balance sheet also shows how the company is positioning for future communities. Inventories increased 5% to $5.98 billion. Land and land-development investment during the quarter rose 40% from a year earlier to $722.3 million, although total land-related investment for the first nine months remained 8% lower year over year.
KB Home sets its year-end range
For the fourth quarter, KB Home expects 3,000 to 3,500 deliveries and housing revenue of $1.45 billion to $1.65 billion. It expects an adjusted housing gross margin of 16.0% to 16.6%, assuming no inventory-related charges.
For the full year, the builder expects 10,500 to 11,000 deliveries and housing revenue between $4.90 billion and $5.10 billion. It projects an adjusted housing gross margin of 16.0% to 16.2%.
The quarter does not point to a broad new-home recovery. Instead, it shows a builder trying to protect margin and rebuild backlog while buyers remain highly sensitive to monthly payments. The first backlog increase in four years is encouraging for KB Home, but lower orders, compressed margins and management’s description of weakening market conditions underscore how fragile demand remains.
