KBH CEO makes some interesting comments. Sounds like he is saying that the situation won't improve until people trying to sell existing homes come to grips with the reality of the situation. He also appears to be saying quite clearly that KBH will continue to build and sell new homes for less than what people are trying to sell equivalent used homes for until the prices come back down. Glad I don't live in those areas!
reuters.com
UPDATE 1-KB Home CEO sees US housing market declining in '08
Thu Jul 19, 2007 5:49PM EDT
NEW YORK, July 19 (Reuters) - The chief executive of KB Home, the No. 5 U.S. home builder, said on Thursday he does not expect the overall U.S. home market to bottom out until the end of next year and that prices will not increase until well into 2009.
"By the end of '08 it will start to stabilize," Jeffrey Mezger told Reuters. "Then it will start to go back up on in '09. I think it will take a year."
The oversupply of existing homes on the market is thwarting efforts by U.S. home builders to spur demand by cutting prices, he said, adding that tightened mortgage requirements after the subprime mortgage crisis were not the chief reason for weakness in the U.S. housing market.
"The bigger factor to me is how many of the markets have this huge resale inventory that has to clear and is going to keep pressure on pricing," Mezger said. "In a lot of the markets we're in the new median price is below resale."
He said that in Southern California, Las Vegas and parts of Florida, such as Orlando, the median price of new home is less than that of an existing home.
"In normal times in a market in balance, new homes carry about a 10 percent premium over resale.
"If today new homes are priced below resale and still not selling, and you have this huge glut of resale inventory, until those prices get back down and they could go low enough for new homes to go down again, we're going to have an oversupplied market," he said.
Mezger was in New York on his way back from France where he closed on the sale of the company's 49 percent stake in former publicly-traded French subsidiary, Kaufman & Broad SA. (KBH.PA: Quote, Profile, Research)
KB, based in Los Angels, reaped net proceeds of $550 million from the sale, which it may use in part to pay down existing debt while waiting out the U.S. housing slump.
The company has cut jobs by about 35 percent since the market began sinking in late 2005.
"The resale inventory levels have got to come down for it to stabilize," he said. "If they do by the end of '08 you'll start to see some traction in demand and supply in balance."
Shares of KB Home closed up 20 cents at $36.32 on Thursday.
Year to date, KB shares have declined 29 percent, while the Dow Jones U.S. Home Construction Index (.DJUSHB: Quote, Profile, Research), a yardstick that measures home builder share performance, has lost 27 percent of its value. |
