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KB Homes Posted a Nasty Quarter

One Rental At A Time

# Full Transcript

**Podcast:** One Rental At A Time

## Participants

- **Michael Zuber** (One Rental At A Time)
- **Beth Traverso** (King County Real Estate)

## Transcript

KB Homes just posted a nasty quarter. Is this the sign of a changing business model? Yeah, probably. Is this the sign that they are at the bottom or basing? Maybe. Is this a sign that home building is over? I doubt it. Let's talk about it. Let's talk about that. We also got new home sales. We got

some other earnings that we should riff on. But let's start with KB Homes. When I look at KB Homes or often think about it, I look at them as entry-level housing. You've got Toll Brothers on the high end and you've got KB Homes at the first-time homeowner. So when KB Homes struggles, it is a sign, obviously, that affordability is a problem. It's a sign that homebuyers are scared

or nervous or unaffordable or any adjective that you want to put on it. But is KB Homes changing their business model? Yeah, the answer to that is absolutely. But what does that mean? Why is it important? Well, when you look at what KB Homes is currently undergoing, they have gone from a business model of trying to build on spec. They were building fast as they could. They were creating

inventory. That inventory becomes a hangover when the market turns. KB Homes is clearing out spec inventory and going back to build to order. So when you change this business model, you obviously slow down building and you obviously take discounts on existing inventory. And that is exactly what happened in the last quarter. Now, if you are in the leadership or a holder of their stock, you're

obviously hoping that this is the bottom, the trough. Because the transition from building to spec to build to order is not overnight. And it will take time to get through. But here are some of the ugly numbers. One, revenue down 27% year on year. How about net income? This one has got to hurt.

Down 75%. Yes, folks, when you're blowing out inventory, you are essentially putting it on sale. And when you put something on sale, you eat margin and you make less money. This is just the cost of doing business, the cost of moving from build on spec to build to order. Deliveries down 23%. That hurts,

right? You don't have as much inventory available. And then net orders down 4%. So quite frankly, an ugly quarter, but a quarter that they probably had to go through. Because in this environment where rates shoot up and buyers get scared, more on that in a minute, it is not a good time to have just this overhang of existing inventory sitting vacant, waiting for a buyer in the future. So again,

if you are a holder of KB Homes or you're looking at it, you obviously have to hope that this transition period is over or nearly over. But yes, that is what is going on at KB Homes. How about Redfin? Redfin talking about existing homes. So again, not new homes, existing homes. Redfin came out and said

home prices are accelerating. They're up 2.5% year...

KB Homes Posted a Nasty Quarter

Transcript

Built for investment professionals

Every day you wait, your competitors are finding
edge in conversations you're not hearing.

KB Homes Posted a Nasty Quarter

Transcript

Built for investment professionals

Every day you wait, your competitors are findingedge in conversations you're not hearing.

Every day you wait, your competitors are finding
edge in conversations you're not hearing.