The success of a housing tax credit that helped spur home sales is haunting homebuilders a year later.
KB Home is the latest builder to report a sharp drop in home orders for the December-to-February quarter, against year-ago results that were bolstered by the government incentive. Rival Lennar Corp. saw its orders drop 12 percent during the period.
The trend underscores a persistent obstacle to a housing turnaround: Absent a compelling incentive, many would-be homebuyers are not in any hurry to commit, deterred by concerns that home values could drop further, as well as by high unemployment, strict lending standards and a slow economic recovery.
KB said its new home orders fell 32 percent from a year earlier, while the number of homes it delivered sank 28 percent. The weak sales figures and several one-time charges led to a bigger quarterly loss for the Los Angeles-based company and prompted management to say it doesn't expect the builder will turn a profit for the year.
"While the economy is improving, it is unclear whether the broader housing market is bouncing along the bottom, stabilizing or improving," said KB Home President and CEO Jeffrey Mezger.
He noted that buyers remain cautious and are taking significant time scouting the market, visiting the builder's home developments several times before making up their minds. Still, Mezger said traffic by prospective buyers rose during the quarter versus a year earlier, on a per community basis. And while down overall, the pace of new home orders improved as the quarter progressed, a trend echoed in March.
The average sales price of homes delivered during the quarter rose to $206,000 from $198,000.
The improving sales pace and price is encouraging in light of the so-far lackluster spring home-selling season, the traditional peak period for home sales. Even so, KB doesn't expect its March or April home orders will eclipse those months' prior-year totals, which got a boost from the tax credit.
New home sales plummeted last year after the tax incentive expired at the end of April and remained weak throughout the summer and much of the fall. Even with the tax credit, new home sales in 2010 fell to the lowest level on records going back 47 years. The weak sales trends have continued this year, with sales falling in January and February. Winter weather received some of the blame, but other signs also point to a soft start to this spring's home sales.
KB expects it will post annual sales increases beginning in May and through the rest of the year, when the builder will have easier benchmarks and it opens up additional new communities.
"This should also set us up with a larger backlog and momentum as we enter 2012," Mezger said.
KB Home builds homes to order for entry-level and move-up buyers and seniors in 12 states.
The company reported a loss of $114.5 million, or $1.49 a share, for the three months ended Feb. 28. That compares with a loss of $54.7 million, or 71 cents a share, a year ago. In addition to charges on land and inventory, the results included a $53.7 million charge and a loss on a loan guaranty of $22.8 million related to the company's investment in a homebuilding joint venture in Las Vegas.
Revenue dropped 25 percent to $196.9 million from $264 million.
Analysts expected a loss of 26 cents a share on $225 million in revenue, according to FactSet .
The builder's net home orders fell to 1,302 from 1,913, while homes delivered dropped to 949 from 1,326 in the prior-year quarter.
KB, which offers mortgages to customers through a joint venture with Bank of America Corp., also said that the lender has given informal notice that it wants to move away from participating in joint ventures. While there are still more than nine years left on the companies' venture contract, they are exploring options to possibly restructure their partnership.
KB Home shares fell 51 cents, or 4.2 percent, to close at $11.69.