KB Home 3Q15 Earnings Call Notes

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KB Home saw some softening at higher price point houses in Houston

“There’s been lot of media coverage relative to the price of oil impacting the economy and housing in Houston. And we can report that our absorption rate per community was basically flat year-over-year. Due to the severe weather in this spring, we did delay openings in Houston into our fourth quarter as well. We are seeing some softening at higher price points in Houston above 350,000.”

Higher labor costs are offsetting the benefits from lower raw material costs

“On the direct cost side, what we’re seeing, we’re actually seeing some favorability in a few of the material categories. I mean, lumber is down pretty significantly; oil cost, gasoline prices are down, that’s reducing travel and transportation for the materials et cetera in some of the other inputs. A lot of the commodities are down. So most of the pressure has been on the labor side and I’d say the labor cost have offset a lot of the other base material cost.”

Demand is starting to recover in the inland empire

“It’s a fairly typical recovery pattern. As prices move up on the coast, people get as close to the coast as they can and buy where they can afford it. So the western end of what we call the Inland Empire, the western side of Riverside and San Bernardino that commutes to work in LA or Orange County has stronger demand and less supply than the far eastern side of those two counties.”

Even Sacramento is picking up, not just commuting from the Bay

“the same thing is going on up in the Bay Area. I mentioned in my prepared comments we’re actually seeing Sacramento gaining momentum in their recovery and it’s not – that one is not necessarily a Bay Area commuter. They’re not going all the way to Sacramento, but you have a local economy that seems to be improving and demand building due to income growth and a lack of inventory. So you have a combination of things going on. I think the underlying supply and demand in those markets is better and you’re seeing a little ripple come out from the coast.”