KB Home reported a smaller third quarter loss Thursday than analysts had expected thanks to the sale of its French subsidiary but also warned that the housing market will likely get worse next year.

The Los Angeles home builder reported a loss of $36 million (-46 cents per share), for the period ended Aug. 31, a steep decline from a profit of $153 million ($1.90) from the same period a year earlier. Analysts polled by Thomson Financial expected a loss of 72 cents per share. KB Home has reported three losses in the past four quarters, totaling more than $230 million.

The loss was mainly due to pretax charges of $690 million and write-down cost of $108 million for the company’s growing stock of unsold homes and vacant lots.

However, the quarterly sting was eased by a gain of $438 million from the sale of the company’s stake in its French subsidiary earlier this year. Excluding the revenue from the sale, KB reported a loss of $479 million ($6.19). KB added that it used the proceeds from the sale to help pay off $650 million in debt.

Revenue for the third quarter fell 32 percent to $1.5 billion, meeting Wall Street estimates, as unit deliveries fell 28 percent and the average selling price dropped 7 percent. Net orders for the quarter fell 6 percent to fewer than 4,000 units.

KB also said that it expects the housing woes to continue well into 2008.

“At this time, we see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins,” said KB’s Chief Executive Jeffrey Mezger in a statement. “The oversupply of unsold new and resale homes and downward pressure on new home values has worsened in many of our markets.”

Shares were off 3 cents to $24.06 in afternoon trading Thursday on the New York Stock Exchange. Shares had been hit hard earlier in the week, losing 13 percent so far this week.