Monday, July 10, 2006

KB Home: Negative Trends in Housing Could Continue into 2007

What a great article... this guys blog rocks! must read material -Steve Harless

Nize Notes -

KB Home: Negative Trends in Housing Could Continue into 2007

Mega homebuilder KB Home, in its most recent filing with the SEC , provides a good field report as to what is really going on in the housing market right now: declining sales, inventory build-up and higher cancellation rates."Our outlook is tempered with caution, ...conditions in many of the markets we serve across the U.S. have become more challenging in recent months. A number of our markets have been affected by a build-up of new and resale home inventories, higher interest rates and higher cancellation rates, particularly markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years. As a result, our sales have been adversely affected. During the quarter ended May 31, 2006, for example, we generated 9,908 net orders, a decrease of 19% from the 12,290 net orders posted in the same quarter last year...U.S. net orders decreased 27%, " KBH reports in its filing.KBH continues, "...we expect the current negative trends in the U.S. housing market to continue for the remainder of 2006 and, possibly, into 2007..."Of course, you will never find a more optimistic group than home builders, so it is no surprise that KBH then talks about "the long run.": "In the long run, we believe the underlying fundamentals of strong demographics and job growth continue to support favorable domestic housing demand."This may certainly be an appropriate time to remind KBH about John Maynard Keynes' observation on the long run: "In the long run, we are all dead."In truth, no one knows how bad the housing market will get. It has been in a multi-decade Federal Reserve inspired boom. Now that the Fed is raising interest rates, the key question will be how much damage have the rate hikes to date already done to the real estate market. Remember, it may take months before all the problems show up. And once they do, we don't believe the Fed will reverse and lower rates until a major obvious crisis hits the economy and/or financial markets. By that time, the real estate market could be on life support.

From Raymond Nize blog: Nize Notes -