When the housing market was at its peak in 2006, KB Home's sales topped $3 billion in one quarter. The company has struggled since, as the worst housing market in generations has led to a decline in housing starts of more than 75% from the peak to the present.
Homes delivered in the quarter were 37% less than in the comparable time last year. Average selling prices also dropped between 4% and 23%, with the worst market conditions being experienced in the Southwest. Although severe, even that understates the true drop-off in business, given the housing market's long-running struggle and falling prices -- the housing markets were already falling in early 2008.
Using information from KB Home's peak Q4 in 2006 and comparing it to present sales and pricing figures, BloggingStocks calculates that all regions have seen revenues drops in excess of 80%. The Southwest has been the worst, with regional revenue down more than 91% in that time. Is the meltdown in its end stages? KB Home CEO Jeffrey Mezger, commenting on earnings, said, "Looking forward, although key economic indicators remain mixed, we are beginning to see signs that some negative housing market trends may be moderating at both the local and national levels."
Is now the time to buying housing stocks? Notable bears, including hedge fund manager Doug Kass, have recently become bullish on housing. KB Home has nearly doubled off its lows, and it actually higher in the last six months -- as is the SPDR S&P Homebuilders ETF (XHB).
The situation for homebuilders is slowly improving, and the road from top to bottom for KBH has been long and painful -- at its peak, the stock traded for over $80/share, compared to $13 and change right now. In boom times, homebuilders can make a lot of money, but when a cycle turns, there is not much they can do to maintain profitability. Because industry economics are only moderately favorable at best, I prefer building materials stocks as a way to play a normalization in housing.
James Cullen also edits and writes at CollegeAnalysts.com. He is the Vice-President of the Boston College Investment Club, which owns KBH, but has no personal position in the stocks mentioned above.