KB Home said Friday that cancellations on contracts for new homes spiked in its fiscal first quarter, driving home orders down 8 percent as it heads into the spring home-selling season.
The company, which reported a sharply smaller loss for the December-to-February quarter, said the surge in canceled orders was due in part to some mortgage lenders backing away from making loans even after the buyers had been preapproved for financing.
Orders also took a hit because KB raised prices in some communities in a bid to capitalize on signs that demand for housing is strengthening.
"It is important to reiterate that despite the factors that impacted our net sales in the first quarter, the results are not a reflection of the housing market as a whole, which we feel is improving," CEO Jeffrey Mezger said in a conference call with analysts.
Still, the builder's results fell short of Wall Street predictions, and shares tumbled more than 9 percent at one point in Friday trading.
A mild winter, rising consumer confidence and three months of strong job growth have raised hopes that the housing market is on a recovery track heading into the spring, traditionally prime time for home sales.
Economists expect sales of new homes will bounce back this year after sinking to the lowest level in a half century in 2011. But most predict it will take several years for the market to return to full strength.
The Commerce Department reported on Friday that sales of new homes in the U.S. fell in February for the second straight month. They dipped 1.6 percent to a seasonally adjusted annual rate of 313,000 homes _ less than half the 700,000 that economists consider to be healthy.
"There is no question that things are better, but we continue to maintain that it will take some time for markets to fully recover," Mezger said.
Even with the drop in new orders, KB ended the quarter with a 30 percent higher backlog of homes under contract. Backlog is a strong indicator of potential future sales _ if orders aren't canceled.
KB, which builds homes to order, has traditionally partnered with a preferred mortgage lender that can provide financing for its buyers. That lessens the chance that something will go wrong in the financing process, leaving the builder stuck with a home under construction and no buyer.
MetLife was KB's preferred mortgage provider until January, when the lender shut down its retail mortgage operations. As a result, many of KB's buyers were left to line up financing through other lenders, some of which would not to extend loans to those buyers.
"In many instances we could not resolve the situation with our buyer and eventually (they) canceled the sale," Mezger said.
Earlier this month, KB inked a deal making Nationstar Mortgage its new preferred mortgage lender. That happened too late to affect the builder's first-quarter results.
In the first quarter KB's net home orders, or orders minus cancelations, fell to 1,197 from 1,302 a year ago. The rate at which orders were canceled jumped to 36 percent from 29 percent.
The builder's completed sales climbed 21 percent to 1,150, up from 949 a year earlier.
For the three months ended Feb. 29, KB posted a net loss of $45.8 million, or 59 cents per share, from $114.5 million, or $1.49 per share, in the same quarter the year before.
Revenue rose 29 percent to $254.6 million from $196.9 million, as the number of homes delivered increased 21 percent to 1,150 and the average home selling price rose 6 percent to $219,000.
Analysts, on average, expected a loss of 24 cents per share on $334.9 million in revenue, according to a FactSet poll.
The company's backlog at quarter's end stood at 2,203.
KB said it hopes to return to profitability this year. The company reported a quarterly profit in the September-November period, but has posted a loss in six of the past eight quarters.
KB Home shares fell 95 cents, or 8.5 percent, to close at $10.29.