Home builders to woo entry-level buyers: Real estate pro

Real estate agent, left, shows a home to a prospective buyer in Coral Gables, Florida.
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As home builders try to gain more business, more will be going after the entry-level buyer, real estate expert Bradley Hunter told CNBC Wednesday.

"It's been hard to do up until now because the builders are saying 'the profit margins are so good in that move-up segment of market, I'm going to do move up. I'm not even going to mess with entry level,'" said Hunter, chief economist with Metrostudy, which provides real estate research and analysis.

However, in order to increase housing starts, he thinks more builders will have to go to the "periphery" to be able to serve the needs of entry-level buyers. Hunter told "Street Signs" those buyer's aren't necessarily purchasing a home for the first time, but are looking in the lower price range.

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D.R. Horton already addresses that segment of the market, he added, and Lennar recently said it will build homes in the $175,000 to $200,000 price point.

Workers apply stucco at a housing development under construction in Jupiter, Fla.
Mark Elias | Bloomberg | Getty Images
Workers apply stucco at a housing development under construction in Jupiter, Fla.

Last week, Lennar, the second largest U.S. home builder, reported a better-than-expected 47 percent jump in quarterly profits. Its average selling price rose 15 percent to $332,000 in the quarter ending Aug. 31.

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KB Home, however, disappointed Wall Street on Wednesday when it reported a profit of $28.4 million in its fiscal third quarter, or 28 cents a share. Analysts had expected earnings of 38 cents per share, according to Zacks Investment Research.

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RBC Capital Markets analyst Robert Wetenhall believes the first-time homebuyer is making a gradual reappearance, and said that will be the theme heading into 2015.

"We're not calling for a great recovery. It's going to be gradual. It's going to be choppy," Wetenhall said in an interview with"Street Signs."

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He said the "huge gains" in the average selling prices are going to flatline, and agreed with Hunter that builders will look to the entry-level buyer to increase earnings.

"To get that incremental volume, you're going to see the builders lowering prices."

—Reuters and the Associated Press contributed to this report.