KB Home imposed two minor price increases due to tariffs but opted to drop prices in some underperforming markets, the Los Angeles-based builder reported in its second-quarter earnings call Monday night.
President Robert McGibney said there were “significant headwinds” in Sacramento and Seattle, requiring more pronounced price decreases. The average selling price still increased on the West Coast and in the Southwest, with average price declines year over year in the Central U.S. and Southeast.
One big challenge for KB Home is the increase in resale inventory in Austin, Texas; Colorado; Jacksonville, Florida; and Orlando, Florida.
McGibney said the increasing existing home supply has started "putting pressure on pricing," as buyers have more choices.
KB Home is not alone. In a survey from the National Association of Home Builders, 37% of builders said they dropped home prices by an average of 5%.
On the flip side for KB Home, Las Vegas; Northern California; San Antonio, Texas; Houston; and Tampa saw “relatively strong demand.”
Builder reports revenue decrease
KB Home posted a 10% revenue decrease year over year during the conference call, citing overall declining consumer confidence and unfavorable economic conditions.
“Affordability challenges have persisted, compounded by the variability in mortgage interest rates, which remain elevated, as well as macroeconomic and geopolitical uncertainties,” KB Home CEO Jeff Mezger said on the conference call. “These factors resulted in a more subdued demand during the spring selling season.”
This pushed the homebuilder to reevaluate its fiscal predictions for the year, dropping total revenue projections from a maximum of $7 billion to $6.5 billion.
The builder constructed 3,120 homes in the second quarter, which was on par with its expected cadence but 11% fewer than at this time last year. KB Home builds single-family detached and attached homes in 10 states for first-time and move-up buyers.
Public homebuilders across the country have reported a softening due to several economic factors, a significant one being stagnant and higher-than-desired mortgage rates, which were 6.81% as of June 18 for a 30-year, fixed-rate mortgage, the most common option.
Other factors include economic uncertainty in the job market due to government layoffs and overall inflation. At the same time, high home prices raise concerns about affordability.
On June 17, national builder Lennar said it dropped home prices by nearly 9% last quarter in response to the demand for lower-cost homes. KB Home posted a median sale price of $488,700 last quarter, an increase from $483,000 during the same time last year.
Homebuyers who financed through KB Home’s lending arm placed an average cash down payment of 16%, the same share as last year. Those buyers also had household incomes of about $136,000 and FICO credit scores of 743, the builder said.
