By Paul Owers
CoStar News
June 18, 2024 | 3:29 P.M.
KB Home, one of the nation’s largest builders, reported increased quarterly earnings and orders as buyers shop for new houses even with mortgage rates near 7%.
Net income in the three months ended May 31 rose to $168.4 million, 2% more than a year earlier. Net orders also inched up 2% to 3,997, though revenue dipped to $1.71 billion from $1.77 billion.
KB benefited from the same momentum as other publicly held builders, such as Lennar and Toll Brothers. The supply of existing residences for sale is constrained because homeowners are reluctant to move and give up historically low mortgage rates locked in during the COVID-19 pandemic. With the market for existing house sales curtailed by this so-called lock-in effect, demand for new single-family units is higher.
Buyers are also responding to builder incentives, such as mortgage rate “buy-downs,” that sellers of existing houses can’t offer. When a builder buys down a mortgage rate, it uses profits from sales to lower the interest rate paid by the buyer.
“We produced solid results in our 2024 second quarter, with our key metrics above the high end of our guidance ranges,” Chairman and Chief Executive Officer Jeffrey Mezger said in a statement. “Buyers remained resilient in their desire for homeownership despite the volatility in mortgage interest rates.”
Mezger noted the company generated substantial cash flow in the quarter and sharply increased its investment in land acquisition and development, positioning it to achieve its goals for the remainder of the year.
Los Angeles-based KB is ranked as the seventh-largest builder by 2023 revenue, while it’s the sixth-largest by 2023 closings, according to Builder magazine.