Publicly traded homebuilding company stocks have seemed invincible the sector is up 75 percent over the past 12 months but some concern is being raised on Wall Street about the high percentage of speculative buyers, the heavy concentration of profits from a few hot markets, and the explosion of creative mortgage financing.

Two analysts recently downgraded L.A.-based KB Home’s shares to “underperform,” although eight others still rate the stock a “buy,” while four give it “neutral” ratings.

L.A.-based Ryland Group Inc., also the victim of recent downgrades, now has seven analysts calling it a “buy,” with four at “neutral.”

The downgrades put a temporary hiccup in the companies’ stock prices, but the shares have since regained steam. As of July 20, KB Home shares were trading at nearly $85, up 160 percent in the past year. Ryland shares, at about $83, traced a similar rise.

“Until the music stops, those are the builders that are going to have the greatest earnings,” said Ivy Zelman, housing analyst with Credit Suisse First Boston.

That concern about speculation has been hard to shake. Credit Suisse conducted a study of major housing markets and found that public-company homebuilders are deriving much of their profits in the riskiest areas: Los Angeles, the Inland Empire, Bakersfield, Fresno, Las Vegas and Phoenix.

The homebuilder with the most exposure to these markets was KB Home. “About 50 percent of its profits come from California,” Zelman said.

Analysts cite the continuing rise in home prices that’s out of step with traditional fundamentals. The number of homes being purchased by people as investments, rather than to live in, hit nearly 17 percent nationwide in 2005, according to Credit Suisse First Boston. That’s up from 14.5 percent in 2004.

“Everybody feels they have to own real estate because otherwise they’re missing out on money to be made,” Zelman said, noting that there’s a danger too many homebuyers are would-be landlords and a high proportion of rental properties will eventually harm prices in a neighborhood or development.

Also, investor-buyers who have been stretched financially are counting on ever-rising prices. “There are a lot of people making that bet on an interest-only, two-year loan,” she said.

KB Home Treasurer Kelly Masuda insists that the company’s business is balanced geographically, with each of five national regions representing 18 percent to 21 percent of the company’s housing units. He declined to give profits by region. “I think being in good markets is a good thing, not a bad thing,” Masuda added.

Standard & Poor’s analyst William Mack believes homebuilders such as KB Home and Ryland have mitigated the speculator risk by imposing contract clauses preventing “flipping” imposing penalties on investor-buyers who plan to resell new homes.

He also pointed out that investor-buyers wait about eight months for the property to be built, then have to wait another 12 months before they can sell it. “You’re talking almost two years that you’re supposedly ‘flipping’ this home,” Mack said. He’s maintained “buy” ratings on both homebuilders.

Masuda acknowledges that KB Home has seen more second-home buyers and buyers who want to rent out the homes, but says the company has contracts in place that require buyers to hold onto the property for 12 months, and in some cases to live in the homes.

He said he doesn’t view the statistics the same way economists or analysts do. The rise in interest-only loans and adjustable-rate mortgages are a positive development, he said, evolving to address consumer demands and get more people buying new homes. “There continue to be new mortgage products to address affordability,” he said.

Though Zelman downgraded Ryland, she said it had the least profit risk of any public homebuilding sector, because its profit base is spread geographically.

Ryland typically aims toward entry-level homebuyers and attached homes like townhomes. “They tend to stick to what they know best,” Zelman said.