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Wednesday, May 25, 2022

Homebuilder Makes Up Ground With Investors

Business might still be sluggish for KB Home but at least investors are showing some faith in the company – and a rebirth of the housing industry.

The Westwood homebuilder’s recent stock gains were part of an industrywide boost thanks to optimism about next year’s home sales, said Michael Smith, vice president of JMP Securities LLC in San Francisco.

“Investors are looking forward to the spring selling season,” he said. “Hope springs eternal that next year will be better than this year. In anticipation of that, stocks tend to rise in the last couple months of the year.”

Shares of KB Home, which trade on the New York Stock Exchange, closed at $8.17 on Dec. 7, up 82 cents from a $7.35 close the previous week Nov. 30. The 11 percent increase far outpaced the NYSE, which rose 1 percent during that period. The company was one of the week’s biggest gainers on the LABJ Stock Index (see page 36).

But the company is still suffering from the long depression brought on by the continued weakness of the housing market. Shares are down 36 percent for the last 52 weeks.

A KB Home spokesman declined a request for comment, citing a quiet period leading into the company’s upcoming earnings announcement.

Smith said he doesn’t share the market’s optimism about the rebound of the housing industry.

“Investors are probably getting a little ahead of themselves,” he said. “Clearly the worst is over, and I don’t things are going to get any worse next year. But they won’t get any better.”

In more bad news for the housing industry, the national home price index fell at an annual rate of 3.9 percent in the third quarter, according to a November report from S&P/Case-Shiller.

Smith said he expects home prices to remain steady next year.

“There’s not a lot of pressure on new-home builders to cut inventory because there’s just not that much of it,” he said. “They understand that if they cut prices by 5 percent, it’s not going to do much. What’s holding people back from buying homes is confidence, not pricing.”

But KB Home orders rose 40 percent to 1,838 for the fiscal third quarter. That’s still significantly below its boom-year numbers: In the third quarter of 2006, KB Home reported orders of more than 4,100.

Smith said KB Home has staged aggressive campaigns to open new housing communities, resulting in the rise in orders for the most recent quarter.

“The land they started buying in 2009 and 2010 has in the last quarter or two had communities that have started to open and get going,” he said.

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