KB Home FY 3Q17 Earnings Call Notes

Jeff Mezger

Housing market conditions remain stable

“Overall, housing market conditions remain stable and positive with strong employment, wage growth and healthy demand from first-time buyers driving overall demand for new homes. Resale inventory remains constrained averaging 4.2 months across the country and far below that level in most of the markets that we build in, filling that deficit of existing home supply. With this market dynamic ongoing, we remain focused on maintaining our healthy pace and increasing overall price where appropriate across the broad range of opportunities in our built-to-order model, including base price, lot premiums, structural options and studio options. ”

Going to be pressure on labor materials in Florida and Houston

“we know there is going to be pressure on labor materials in Florida and Houston, we don’t know to what degree and that there isn’t a lot of funding to start repairs. What we have been doing as a company is procuring the materials for our deliveries we have already procured into the second quarter and it’s a benefit of being in our built-to-order model and knowing your starts and you have visibility in your production. So, we are going to our subs and lock them down. We are going to our suppliers and locking them down now. ”

Strong market in California

” Right now, there is a very strong market in the Bay Area. There is a shortage of product on the market. Prices are still moving up. And as they move up, it moves buyers a little more in them, because there is strong demand to be a homeowner and they will go where they can afford to buy a home. So, we saw price in both Northern and Southern Cal in the inland areas in the the third quarter.”

There is more demand than there is supply

“right now, with the shortage of inventory and all the positive things I mentioned first time buyers coming out, wage growth, employment growth, all these good things are going on and there is more demand out there right now than there is supply.”