KB Home, one of the nation's largest homebuilders, says it sold fewer homes than anticipated in the first quarter and has lowered prices and projections for future sales as the traditionally busy spring selling season started with a fizzle amid affordability concerns.
KB said it had expected a typical start to the selling season in January based on the number of its website leads and foot traffic at its developments, while mortgage rates remained similar to what they were in early 2024, according to Chairman and CEO Jeffrey Mezger.
"As the quarter progressed following our last call, it became apparent that demand was softer than we expected," he said late Monday. "We took action in mid-February, evaluating our base pricing in every community relative to local market conditions, then repositioning our communities with a focus on offering the most compelling value."
As the homebuilder lowered its outlook, the price of KB shares dropped more than 7% in morning trading but had rebounded some by 11:15 am.
The tone of KB's comments during its first quarter conference call mirrored those made last week by Lennar executives who expressed concerns over U.S. housing affordability and declining consumer confidence.
The spring selling season is typically the busiest time for residential real estate as families look to buy and get settled before the start of a new school year.
The builder reported 2,770 sales in the quarter ended Feb. 28. That's down 9% from the first quarter of 2024. KB also said it lowered revenue guidance for the year based on fewer net orders and reduced prices from $5,000 to $30,000 a home in about half of its 49 markets. KB said Florida was its softest state for sales.
Consumers respond favorably
Mezger said he's encouraged by the response to the steps KB took. He said the company experienced a "meaningful improvement" in net orders in the last two weeks of the first quarter and that the increase continued into the first three weeks of the second quarter.
"While we're pleased with this progress, we recognize that the environment is dynamic, and we are committed to taking further action, if necessary, depending on how market conditions evolve," Mezger said.
Los Angeles-based KB Home primarily builds single-family homes for entry-level, move-up and 55-and-over buyers across the South and West. The company says it has built nearly 700,000 homes in more than 65 years. It's the sixth-largest U.S. homebuilder by sales, according to the most recent rankings from Builder magazine.
Aside from lowering prices, KB continued to offer concessions to buyers, including mortgage-rate buydowns. In a buydown, builders use profits to lower buyers' interest rates and make the monthly payment more affordable.
Florida was the slowest of all its states, driven by such factors as the cost of property insurance and a sharp increase in existing homes for sale. As a result, KB reduced prices the most in the Sunshine State, Chief Operating Officer Robert McGibney said during the conference call.
Texas produced more mixed results, with Houston and Austin needing "smaller and more surgical" price reductions, while San Antonio required greater adjustments, McGibney said.
KB said it postponed about 75 home sales in Southern California until the second quarter due to an inability to get utility hookups and final clearances following the wildfires that swept through the region.