KB Home loses $773 million; CEO is gloomy

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By Peter Y. Hong, Los Angeles Times Staff Writer

KB Home Chief Executive Jeffrey Mezger gave a grim assessment of the nation's housing slump today, saying there is "no indication the markets are stabilizing," as he announced poor fourth-quarter results for his firm.

The Los Angeles-based company, one of the nation's largest homebuilders, reported a loss of nearly $773 million, or $9.99 a share, for the quarter ended Nov. 30. That compares with a loss of just under $50 million, or 64 cents, in the same period a year ago.

Revenue fell to $2.07 billion for the quarter, down from $3.01 billion the previous year, because of lower home sales and prices.

For fiscal 2007, KB posted a loss of $929.4 million, or $12.04 a share, compared with a profit of $482.4 million, or $5.82, in fiscal 2006. Revenue fell 32% to $6.42 billion.

The company's shares tumbled $1.70, or 9.2%, to $16.78, the lowest since 2001.

Mezger predicted the national housing downturn would linger because of several factors: "oversupply, foreclosures, reduced affordability and declining consumer confidence."

"Current conditions are not improving enough to clear inventories," which stand at nine months for new homes nationwide, he said.

In these lean times, Mezger said, the company has "moved quickly to strengthen our financial position and generate cash." The firm has cut its debt by $759 million and increased its cash balance by $625 million.

KB has cut jobs and construction and is focusing on building smaller, lower-priced houses. Mezger said the profile of the company's typical customer has changed. "We are definitely seeing a buyer viewing the home for lifestyle, intending to live in it for a while. The days of the flipper are gone," he said.

Though KB focuses on first-time buyers, Mezger said the number of customers trading has declined.

"A lot of move-up buyers have difficulty disposing of their current home; they're upside down," he said, referring to homeowners who owe more on their property than it's worth.

Mezger's view of the overall housing market contradicts a prediction by the National Assn. of Realtors, which said home sales would hold steady and then climb by year's end. "A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed until late 2008," said NAR chief economist Lawrence Yun.

Yun's prediction is based on the NAR's pending home sales index, which the group reported fared better in November than it did in August and September. The index fell 2.6% from October, and was 19.2% below the previous November.

The index tracks signed housing contracts. A 100 score reflects the average level of contract activity in 2001. The November index was 87.6, compared with 108.4 in November 2006.

http://www.latimes.com/business/la-fi-kbho...a-home-business

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The model I live in has dropped 20% in value since '05. I hope it stops dropping soon.