Losses widen at KB Home
CORRECTED – As losses widened at KB Home in the third quarter, the company said that part of its new strategy is to build smaller houses, as demand for less square footage appears to be outpacing demand for the outsized homes that were popular during the housing boom.
Losses in the third quarter were $144.74 million, steeper than the $35.6 million in losses recorded in the comparable period last year. Losses at KB Home totaled $668.8 million for the first three quarters of the year, falling further from losses of $156.8 million in the same nine-month period last year.
Revenues were $681.6 million, down from $1.54 billion in the same period last year, a 55 percent decline. The company also saw an overall 10 percent decline in the average home selling price, to $239,700.
KB Home delivered 2,788 homes, compared with 5,699 homes in the year-ago period. The company’s cancellation rate jumped as well, to 51 percent from 27 percent a year ago.
KB Home CEO Jeffrey Mezger said the cancellation rate reflected “broader dynamics” in the housing market. To respond, the company is trying a variety of tactics, including building smaller homes and cutting the number of developments underway.
In the Inland Empire area of California, he noted, the company is shifting to smaller, less expensive homes, going from an initial size of 3,400 square feet at $450,000, to 2,400 square feet at $300,000 last year. Mezger said that change “worked for a time, but the market continued to move away from us.” In response, the builder has started building three-bedroom, 1,230-square-foot homes selling for $200,000 in the Inland Empire, he said.
True Value holds growth conference in New Jersey
Atlantic City – Around 40 True Value store owners from around the New York Metro area gathered at the Atlantic City Hilton Resort in Atlantic City, N.J., on Sept. 23 for a Regional Member Growth Conference — one of 13 meetings around the nation designed to bring co-op members and executives together in a small group setting.
This was the 12th of 13 stops for the True Value team, which has been meeting with retailers from all over the nation, beginning in Naperville, Ill., in early July.
“I’ve engaged with somewhere between 650 and 750 members, learning what’s on their minds and continuing to share best practices on improving sales, growth, margins and performance within their stores,” said CEO Lyle Heidemann, who kicked things off by addressing the group on the state of True Value’s operations.
Shawn Clifford of True Value of Bethel in Bethel, Conn. — attending his first conference — said it was helpful to hear Heidemann’s morning address, and he was looking forward to sharing ideas and strategies with other members during the afternoon breakout sessions.
“I think it’s valuable to take what you learn here and see how you can do things differently in your store on a day-to-day basis,” said Clifford, a fifth generation owner who opened his current store a year ago. “You have a chance to look at the bigger picture and talk to others about what they’re doing.”
Alison Dannehower and her brother, Paul Giunta, rode the short distance from Shore True Value in Somers Point, N.J., to get some pointers on controlling costs within their store. “I think one of the biggest concerns is retail prices going up,” Giunta said. “Inflation is driving up the cost of raw goods, and we’ve got to stay on top of that.”
Also attending was Tom Collins of Colmer True Value Home Center in Margate City, N.J., the first Destination True Value remodel in the state. “In a declining market, our business has been up because of the new format,” said Collins. “Now I’m trying to stay abreast of what’s going on with other stores. Having the strength of the True Value network has given me tremendous advantages.”
The Regional Member Growth Conferences conclude on Oct. 2 in Denver.
Existing-home sales slid further last month
Existing-home sales fell again in August, according to the National Association of Realtors, down 2.2 percent to a seasonally adjusted annual rate of 4.91 million units. That compares with an upwardly revised pace of 5.02 million in July, and is 10.7 percent lower than the 5.5 million-unit pace in August 2007.
“The difficulty in obtaining a mortgage increased over past couple months, making it more challenging for creditworthy borrowers to find financing,” said NAR president Richard Gaylord. “Our hope is that overly tight lending criteria can be loosened with reasonable standards and credit so that sales activity can catch up with demand.”
The national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 6.48 percent in August from 6.43 percent in July; the rate was 6.57 percent in August 2007. However, last week the 30-year fixed had dropped to 5.78 percent.
Lawrence Yun, NAR chief economist, credited government action for the drop in interest rates. He explained, “August sales reflect higher interest rates before the government takeover of Freddie Mac and Fannie Mae, and the sudden drop in mortgage interest rates over the past couple weeks is improving housing affordability.”
The national median existing-home price for all housing types was $203,100 in August, down 9.5 percent from a year ago when the median was $224,400.
Total housing inventory at the end of August fell 7.0 percent to 4.26 million existing homes available for sale, which represents a 10.4-month supply at the current sales pace, down from a revised 10.9-month supply in July.
Single-family home sales slipped 1.4 percent to a seasonally adjusted annual rate of 4.35 million in August from an upwardly revised pace of 4.41 million in July, but are 9.6 percent below the 4.81 million-unit level a year ago. The median existing single-family home price was $201,900 in August, down 9.7 percent from August 2007.
Existing condominium and co-op sales dropped 8.2 percent to a seasonally adjusted annual rate of 560,000 units in August from an upwardly revised level of 610,000 in July, and are 19.0 percent below the 691,000-unit pace in August 2007. The median existing condo price4 was $212,600 in August, which is 7.2 percent below a year ago.
Regionally, existing-home sales in the Midwest rose 0.9 percent in August to a pace of 1.14 million but are 12.3 percent below August 2007. The median price in the Midwest was $168,000, down 5.6 percent from a year ago.