Home builders show their desperation

Have home builders got an offer for you: sign a contract to buy a home and, if comparable homes in the area decline in value before closing, you can have the home at a reduced price.

According (subscription required) to the Wall Street Journal, companies including KB Home (NYSE: KBH) and Ryland Group (NYSE: RYL) hope such "price protection" guarantees will lessen consumers' paralyzing fears about buying real estate whose value is falling and get them sign on the dotted line, bring in much-needed cash and reduce high cancellation rates.

KB will roll out its price protection program in 35 markets this month. The move is an effort to move some impossible-to-sell new houses, and try to toss buyers a bone that will keep them from walking away from their down payments.

As an investor, I wonder whether this a sign of absolute desperation on the part of home builders, or is it a more bullish indicator that executives don't feel there's much risk in assuaging customers' fears with an offer to compensate them if the home declines in value before closing.

I would say the first option seems more likely.