Another off day for KB Home

Stock did recover in the closing minutes of the session after being down nearly 7 percent. Investors remain jittery as they sort through Friday's disappointing earnings report - specifically a sharp decline in new orders (including a 28 percent drop on the West Coast). While some of the drop is due to factors specific to the L.A.-based home builder, the results came on the same day that the government reported lower-than-expected new home sales in February. From the WSJ:

The data highlighted a major difference between the market for new homes and the market for existing homes. The existing-home market, which showed signs of life this week when sales of previously owned homes reached their highest level since 2007, has been buoyed by investors who are buying distressed houses at bargain prices and renovating them for resale or rental. But the new-home market is still struggling to compete on price against foreclosures and short sales. "The new-home market is off way more from its peak than the existing-home market is, and the big difference is investors," said John Burns, a consultant based in Irvine, Calif., who tracks the national housing market.

Keep in mind, however, that KB has made a bunch of mistakes over the past two years by purchasing land in foreclosure-plagued markets.

In mid-2010, for example, KB bought land for nearly 700 new homes in Riverside and San Bernadino Counties in California, with a plan to finish development quickly and sell homes within six months. That plan, the order numbers show, hasn't worked out as the company hoped. According to Metrostudy, KB Home has 43 active communities selling homes in five California counties and 42 active communities in central Florida, both areas with huge foreclosure problems. "They invested a lot of capital in the Inland Empire last year, and that's a lousy market. It's still one of the worst markets in the country," Mr. Burns said. "They put their eggs in the wrong basket."

More by Mark Lacter:
American-US Air settlement with DOJ includes small tweak at LAX
Socal housing market going nowhere fast
Amazon keeps pushing for faster L.A. delivery
Another rugged quarter for Tribune Co. papers
How does Stanford compete with the big boys?
Those awful infographics that promise to explain and only distort
Best to low-ball today's employment report
Further fallout from airport shootings
Crazy opening for Twitter*
Should Twitter be valued at $18 billion?
Recent Economy stories:
Those awful infographics that promise to explain and only distort
Best to low-ball today's employment report
Exit interview with Port of L.A.'s executive director
L.A. developers relying on foreign investors bend a few rules
Holiday shopping: On your marks, get set... spend!

New at LA Observed
On the Media Page
Go to Media

On the Politics Page
Go to Politics
Arts and culture

Sign up for daily email from LA Observed

Enter your email address:

Delivered by FeedBurner

Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
LA Observed on Twitter and Facebook