When KB Home was known as Kaufman & Broad, it had the reputation of selling fairly modest, affordable homes to the masses during the postwar era’s long suburban growth.
But during the recent housing boom, the company’s revenue and profits soared along with the size of its houses – until the bubble burst.
However, the Westwood homebuilder thinks it has found a formula for success now that the market appears to be slowly recovering: It is building fairly modest, affordable homes again.
Earlier this year, KB launched its Open Series line, homes that can run less than 1,500 square feet and sell for less than $150,000, far less than the models that regularly topped 4,000 square feet and $500,000 earlier this decade.
And it’s not just size that differentiates the homes.
While McMansions of a few years ago featured granite countertops, sunken tubs and outdoor fireplaces, the new homes can be ordered without doorbells and garbage disposals, all in the name of saving a buck.
“It is a concentrated effort to really go to KB Home’s roots to offer first-time buyers what they need,” said Steve Ruffner, president of KB Home’s Southern California coastal division. “The demand for these homes has been terrific.”
KB Chief Executive Jeff Mezger said in a Sept. 25 conference call that Open Series homes are projected to account for more than 50 percent of all the houses sold by the company in the fourth quarter. In its third quarter ended Aug. 31, the company delivered 2,240 homes nationwide.
In the last year, the company has opened 12 Open Series developments in Southern California, including one in Lancaster and a second that’s set to open in that high desert city this month. In contrast, it has opened only two developments of larger homes in the region.
So far, any impact on the bottom line has been modest. KB posted losses the last three quarters, including $66 million in the third quarter. However, the strategy has some analysts cautiously optimistic about the country’s fifth largest homebuilder.
“KB was one of the first to start to downsize their homes so they could take as much cost out of the equation so that they would be able to sell at a lower price,” said analyst Robert Stevenson of Fox-Pitt Kelton Cochran Caronia Waller in New York, who rates the company’s stock a hold. “It’s a difficult environment out there. These guys are doing a decent job of operating.”
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