One of the nation's largest home builders, KB Home, reported that it went into a loss in the fiscal second quarter as it booked charges for land and inventory write-downs.
President and Chief Executive Jeffrey Mezger said that they cannot predict when market conditions will improve. He explained that besides continuing weak demand and strong competition, the tighter credit conditions in the subprime and near-prime mortgage market have also affected the current market, "keeping prospective buyers out of the market, slowing the absorption of excess supply and further delaying a housing market recovery."
According to KB Home reports, the net loss for the quarter ended May 31 came to $148.7 million, or $1.93 a share. They had a profit of $205.4 million, or $2.45 a share, a year ago.
The company reported a loss from continuing operations of $174.2 million, or $2.26 a share in the latest quarter, largely due to a pretax, non-cash charge of $308.2 million related to inventory and joint venture impairments and the abandonment of land options contracts. A year ago, earnings from continuing operations came to $184.4 million, or $2.20 a share.
KB Home agreed to sell its 49% stake in the home builder from France, Kaufman & Broad S.A., in order to focus more on its core U.S. home-building operations. Income from the French discontinued operations, net of taxes, totaled $25.5 million or 33 cents a share in the second quarter, compared with $21 million or 25 cents a share a year before. In premarket trading, KB Home shares were at $39.60, versus Wednesday's close of $40.43.
KB Home - Latest Quarter
KB Home delivered 4,776 homes, down 36% from a year before. The average sale price of a delivered home fell from $295,300 a year ago to $271,600. Net orders dropped 3% to 7,265. The backlog as of May 31 was 13,672 units, valued at $3.74 billion, compared with 20,924 units, valued at $6.12 billion, a year earlier.
Subprime Mortgage Crisis
As the fallout continues in the subprime mortgage crisis, the situation looks increasingly worse for home builders. The industry is not likely to improve until next year, as builders are slashing prices on their existing inventory and are abandoning land options, foreclosures are skyrocketing, and lending requirements are becoming tighter and tougher.
More Losses
KB Home rival Lennar Corp. posted a deep second-quarter loss on Monday. They warned that worsening housing market conditions could worsen and affect the third quarter and the rest of the year aversely.
According to a report by the National Association of Realtors, existing-home sales for May fell to their lowest level in nearly four years. The figure is important because many buyers of new homes upgrade from previously owned homes.
Data from the government last week stated that May housing starts fell 2.1% amid production cuts as home builders struggled to pare bloated inventories.
Analysts said further price cuts are inevitable as inventories of unsold homes keep growing.