KB Home 1Q15 Earnings Call Notes

posted in: Notes | 0

Economy continuing to strengthen

“By most metrics, the national economy is continuing to strengthen, whether you consider job growth, the unemployment rate, GDP growth or consumer confidence. At the same time, mortgage rates and affordability remain favorable. Resale inventories levels are low, price appreciation continues and the share of home sales that are distressed has declined. There have also been recent reports published regarding the acceleration of household formation as millennials are finding jobs in the improving economy and moving out on their own. This age group is also now entering their prime home buying years which could create significant demand going forward.”

Housing recovery gaining traction, plenty of runway

“The housing recovery is gaining traction with plenty of runway before we reach normalized volume levels. Our increasing traffic is a strong indication that demand is on the rise. While our average community count was up 22% year-over-year in the first quarter, our traffic levels were up 46%. We believe that this acceleration in traffic can be attributed to not only improved housing fundamentals but also the favorable response to our new community openings which feature the right products in the right locations.’

California doing well

“In California, the Bay Area is very strong with solid job and income growth occurring in an area with limited housing supply. Our net orders in the Bay Area were the primary driver of our positive order comp in our West Coast region. In Southern California, the coastal area is showing a real uptick in demand after a soft fourth quarter and there are indications that the strengthening demand is starting to ripple inland once again. We are particularly pleased with our strong order comp in our Southwest region. Las Vegas continues to be one of our best performers in net orders per community in a market demonstrating strong demand.

We are also seeing encouraging signs in Phoenix, where we are working to expand our community count in a market that is stabilized and improving. Our central region continues to perform wel’

No signs of slowdown in Texas

“There has been a lot of new coverage on the impact of declining oil prices on jobs and housing in Texas. At this time, we are not seeing any evidence of a slowdown in demand. While the central region was up a solid 15% in net orders, Houston’s results actually exceeded the region’s average. ”

Delivered 1593 homes in Q1

“We delivered 1593 homes in the first quarter representing a conversion rate of 55% of beginning backlog”

Spring selling season has been very encouraging

“The early signs of spring selling season have been very encouraging and we are well positioned to take advantage of this demand.”

More first time buyers poking around

“We are certainly seeing, with the traffic increase, a lot of people that are out for the first time, looking around. I don’t know that we can share that we have seen a big swell in sales to the first time home buyers yet but it’s an encouraging trend. And I agree, the data is always subject to revisions. The consistency and the uptick over the last couple of quarters would suggest that it’s a real trend and we will see. To me it’s really the missing link in a fulsome and sustained housing recovery.”

So much pent up demand

“it’s an incredible pent up demand that seems to be starting to get unlocked.”

Cost of build went up faster than price

“you have a combination of — in many of our markets our cost of build went up faster frankly, than we could move price. So we have some margin erosion on the cost of build.’

Mortgage situation remains tight

“I certainly think the mortgage situation remains tight. And it is holding back the recovery. You know we have talked about things like the mortgage insurance premium came down and that’s a good thing. I do feel that the big banks still have overlays and are still conservative in their underwriting because of the rules and the impact of Dodd-Frank are still getting clarified. So you have a recovery that’s occurring and demand is growing. It’s still a top shelf borrower, I will say, in that FICO scores that five years ago you could get a loan on you still can’t get today.”