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KB Home Message Board

  • alstry alstry May 2, 2007 12:07 PM Flag

    The question analysts NEVER ask

    What percentage of Q1 homes Orders/Sales AND Revenues (the same transaction counting for both orders and closings in the same quarter), came from the liquidation of specs?

    It may surprise you how large the percentage actually is.

    What that means is that termporarily HB numbers look pretty good. But as specs are liquidated, the inventory from which to sell from is going to decrease materially along with backlog.

    By the third quarter of this year, based on the current business outlook for HBs(record inventory from foreclosures and flippers and thightening credit), we could see backlog levels down to numbers we havn't seen in decades. Evidencing this is the further slowdown we are seeing in April. Not only that, builders will be operating out of a historically high number of communities still burdened with billions in debt.

    HBs have publicly admitted they are reducing spec count. Without specs, it may be a tough sell. Who is going to buy a custom build when a similar house can be purchased for a fraction of the price. Go through new communities and see how many homes are for sale.

    In addition, it is going to be difficult for HBs to unload excess inventory because competitors also have excess to unload.

    How this unfolds will be very very interesting.

    Time will tell.

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    • Ironically, inventory continues to grow despite the fire sales builders like Centex, Beazer and KB Home have been conducting on their inventory of unsold homes.

      The backlog for Centex right now hasn't been this low since 2000. And it's just about as bad for the rest.

      You have rightly asked the question, "Will builders offer deep discount on build to order homes?"

      The recent run up in these stocks, which began in early April, is even more irrational than the rally back in the Fall as there isn't even the glint of hope that the housing bust is bottoming.

      • 3 Replies to PBernhardt
      • What is "back log"?
        Is it unsold inventory of homes? OR
        is it home orders that has yet to be made?


      • The last rally in home builders in the fall was tied to hope that the spring sales would save the day and that the bottom was in. They were dead wrong, yet the funds that control the majority of the shares are now relying on the so called book value to support there position. They have no credibility left, that canard will be as well proven wrong.

        Can you imagine being that wrong at your job and still have one.

      • Focus on Backlog, you could see some amazingly low numbers after next quarter.

        What is incredible is that not a single analyst is talking about this. S&P and others have buy recommendations on HBs that are having to get waivers on their loan covenants.

        This behavior is even more eggregious than the dotcom days because there is no novel valuation method to apply, ie eyeballs.

        A possible reason is that Wall Street is making one last attempt at a capital raising round to generate fees. My guess is that they want to do it before next quarter's backlog numbers come out. We will know soon enough one way or the other.

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