Homebuilder KB Home (NYSE:KBH) reports earnings for the quarter ending Aug. 31, 2011, before the market opens Friday. After many false starts, the sector is starting to show some signs of life. I expect Friday’s report to confirm at a minimum that a bottom has been put in this much-maligned sector.

Headlines in the homebuilding space would suggest the sector still is struggling. Homebuilder sentiment dipped in August, according to a trade report. The industry remains plagued by many issues, including high unemployment, tight credit and excess supply of homes for sale on the market.

Confirming that negative sentiment are new construction results that are less than stellar. In August, new homes constructed fell by 5%. With the negativity in the space, homebuilding stocks once again have been shunned by investors.

KB Home’s operating results have stumbled significantly during the past two quarters:

Indicative of the struggles, the company is bleeding red ink. Results missed badly in the most recent quarter. In the wake of that report, analysts slashed estimates for the future. For the quarter ending Aug. 31, the average Wall Street estimate is for the company to lose 19 cents per share. Ninety days ago, the estimate was for a loss of five cents per share. For the full year ending Nov. 30, 2011, the average estimate is calling for a loss of $2.59 per share.

However, Wall Street is optimistic the company will rebound in the 2012 fiscal year. The average estimate that year is for a loss of only 12 cents per share. At current prices, KB Home trades for just over book value.

After another in a long line of false starts, shares of KBH have retreated by 46% during the past 12 months:

After looking at the above data, it is hard to imagine being bullish on KB Home — yet that is exactly where I am today. In 2007, I suggested investors short the homebuilding sector. Since that time I have been appropriately on the sideline, never having quite believed in the calls for a bottom. Today, my view is different.

It is difficult to see things deteriorating from here. Balance sheets in the sector have improved. Even though KB Home is slated to lose money this year, the company is likely to break even from here. Given that shares have fallen sharply during the past 12 months, I do believe now is the time to buy.

That holds true from an earnings trading perspective, too. KB Home shares rallied nearly 6% on Tuesday. On Monday, fellow homebuilder Lennar (NYSE:LEN) beat expectations, and its shares were higher on a down day for the market. This too might be a false start for KB Home, but if we’re trading earnings, we are getting in and out of the stock quickly.

The news is bad for sure, but I expect a good report from KB Home. Expectations are so low that the company does not need to jump very high to impress. Look for the stock to gain significantly if it beats earnings Friday.