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KB Home beats on second-quarter earnings

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Yahoo Finance Live anchors discuss second-quarter earnings for KB Home.

Video Transcript

JULIE HYMAN: All right, let's talk about KB Home. We heard from Lennar, which talked about strong order growth. KB Home also topping estimates in its latest quarter. Overall revenue was up by 19%. And the company does say that sales rates are moderating, but is still expecting to achieve its revenue goals for the full year here.

And the company seeing better than expected gross margin, according to Wells Fargo analyst Deepa Raghavan, and stronger leverage as well. Better average selling prices persisting here at KB Home, which is interesting because you still have your supply-demand imbalance. Even if demand falls off a little bit, I wonder if supply is just so tight that that continues to support some level of pricing here, particularly in the new home sales market.

BRAD SMITH: I think kind of to that point, the homes delivered, that was basically even, the company said, at 3,469 during the quarter. And even though the revenues grew 19%, sure, that's on higher pricing as of right now in the market. As we see less mortgage applications and that kind of softening within the market, where does that pricing power retain?

And is it strictly driven by the supply chain crunch that they are seeing to say, hey, in order for us to be able to deliver a home at the pace that you're looking for and able to get the materials, that means that we're going to have to pay up for either the shipping or the logistics in order to get those materials, and we're going to have to pay higher on lumber.

They had talked about that in the most recent quarter, positive impacts partly offset by higher construction costs. They had elevated lumber prices, increased expenses to support current operations and expected growth. And so all of those things considered, I think, for consumers that are opting into a new home versus what we were seeing within Redfin and some of their data in the studies on the existing home side. And what they're already seeing is some of that softening show up in their data as well.

Typically, home bidding wars received 5.3 offers in May. That's down from 6.8 in April, 7.4 in May of 2021. And that's according to some of the data from Redfin agents. So if you kind of pair together this broader kind of home sector crunch that we're seeing, or at least, the softening within it, on both the existing home side, which Redfin is talking about, and then the new home side, which a KB, a Lennar, which we talked about, just a couple of days back, is looking at, I think we are starting to see that show up in the data.

The Fed is going to be paying increasingly close attention to that. If there's any earnings reports that maybe the Fed and Jerome Powell are keeping an eye on, it should be some of these homebuilders to see when it also shows up in the rest of the market, too.

JULIE HYMAN: Yeah, and by the way, we're going to get an update on the average 30-year fixed mortgage rate. That's coming up at 10:00 AM. So that will also be telling and will let us know if, I mean, presumably, it's going to-- we have seen rising in that, and that that has put some pressure on the housing market.

BRAD SMITH: Definitely.