More on the Housing Mystery
The Street is abuzz about home builder KB Home's disappointing numbers.
Right across the board — orders, closings, margins, profits — all were below expectations, particularly a drop in orders of 8 percent, well below the roughly 20 percent increase that was expected.
What's going on?
1) are some markets weaker than others? The West and Southwest saw weaker sales for KBH . Perhaps their locations are not as well-positioned as their competitors, or maybe they are not as well-positioned against their competitors.
2) KBH's cancellation rate spiked up to 36 percent year-over-year (from 29 percent). KBH is known for entry-level buyers: are first time buyers weaker than other segments of the markets? They are likely to be having more trouble getting mortgages.
Many traders seem to feel this might be a company-specific problem. Barclays was typical: "We are taken aback by the degree to which KBH's results diverge from what we are seeing and hearing from other builders..."
There may be something to this: it appears deliveries were pushed into future quarters due to mortgage delays. KBH's preferred lender announced it was exiting the business at the end of last year, and this may have caused problems closing deals. Keefe Bruyette Woods said, "We are hopeful that the company's new agreement with a preferred mortgage provider can improve execution later in the year."
Lennar reports Tuesday, so we will know by then.
One important point: this only includes results through February, so it is not truly spring buying season.
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