Could this be the start of something big for homebuilders?
The hard-hit housing industry showed some signs of recovery with last week’s reports of new and existing home sales. New homes sold in February were reported at 337,000 versus 322,000 for January.
Existing home sales posted an equally modest increase, but an increase of any size is welcome news for this beleaguered industry. Existing home sales for the month were 4.72 million compared to 4.49 million in January and 4.45 million which had been forecast.
The first-quarter earnings report for fiscal year 2009 by the nation’s fifth largest homebuilder, KB Home (KBH) bore evidence of the slight easing taking place.
The company reported a significantly larger decrease in losses for the quarter as compared to the year previous first quarter repor: 8 million compared to losing $268 million.
KBH reported a net loss for the quarter of $58 million, compared to losing $268 million in 2008’s first quarter. The 75 cent loss for the period was 6 cents less than the consensus forecast from analysts polled by Thomson Reuters.
More important than the lower than expected magnitude of the loss was the discussion of the reason for the improved performance.
KB Home reported fewer write-downs of inventory, a 26% increase in net orders and a big drop in the number of cancellations.
KB Home has also been more aggressive than other home builders in reconfiguring its product line to a lower price point. The company has stepped up the introduction of its Open Series of homes. The Open Series is a smaller less expensive option priced to compete with the fire sale priced foreclosed homes. Half of the company’s home sales for 2009 are projected to come from the Open Series.
As a result of stepped up marketing of the Open Series, the average sales price of contracts for the purchase of new KB Home houses has dropped from $248,200 to $210,700. Company Chief Executive Officer Jeffrey Metzger said in the earnings release that while the company sees growth in its orders through the balance of the year, he does not anticipate major improvement in market conditions this year.
It is also significant that the Obama stimulus package has not yet impacted the market. It is likely that the $8,000 tax credit for the purchase of a new home will at a minimum sustain the increased pace of sales and may provide a push to significant growth for the industry.
This article was written by Jamie Dlugosch, editor, InvestorPlace.com. For more actionable insights likes this, go to: www.InvestorPlace.com.
