US homebuilder reports $773m loss

BBC ^ | 08 Jan 2008 | BBC

[BGHater]

KB Home expects 2008 to be as tough as last year KB Home, the fifth largest US homebuilder, has made quarterly loss of $773m (£392m) as the American housing market slowdown continues to bite. Reporting for the last three months of 2007, KB Home said it had written off $305.5m because of the reduced value of its housing and land stocks. The Los Angeles-based firm said its sales fell 22% in the quarter compared with the same time last year. KB Home, which saw revenues fall 31%, said it also expected a tough 2008. Record defaults The company's fourth quarter revenues totalled $2.07bn, compared with $3.01bn for the same period in 2006. Its $773m loss compares with a $49.6m loss a year earlier. Government figures released at the end of December showed that sales of US homes fell to a 12-year low in November. The US housing market has crashed over the past year in the face of higher mortgage rates, which have led to record mortgage default levels, particularly in the sub-prime sector.

[Perdogg]

If the housing market is soooo bad, why are people continuing to build?

[Moonman62]

Some local markets are still viable.

[stephenjohnbanker]

KB hires more illegals than any other builder........I hope they slip into Chapter 11 !!!!!!!!

[trumandogz]

Silver lining to this Black Cloud will be fewer sprawling suburbs of substandard tract housing.

[NVDave]

The builders are already in contracts to buy land, or are already under contract to develop, etc, etc. They’re in a market where it takes relatively long times to get approvals, permits, establish lines of credit, hire contractors, etc, etc, etc.

Once they’re into a deal, the pull-out costs are often higher (much higher) than the costs of going forward and selling the houses at fire-sale prices. The easy pull-outs were done last year — go back into the builder company new releases from last year (starting in, oh, June/July and going forward) and you’ll see that several builders walked away from options to purchase land - these walk-aways cost them what seem like huge amounts of money, but were cheap costs compared to what they’re having to do now - push through to completion, perhaps to sell at or below cost(s).

In places here in Nevada (Reno especially) there is a large overstock of already built or existing housing in the market. If the builders could stop on a dime, they would, but they can’t. So there’s a huge amount of housing yet to come into the market that is planned or already under construction. Vegas has a huge oversupply, but builders walked away from options to purchase more land last year. In Reno, more builders are “in for a dime... in for a dollar” positions.

This is why in some markets, we’re going to see house prices decline by amazing amounts — 25% or more. There is going to be over-supply that simply swamps the declining demand as the easy lending standards are revoked and new, tight lending standards are put into place.

[Perdogg]

I always thought it was sort of like NASCAR and accidents. If yo seen an accident drive to it, by the time you get there it will be over.

I always figured that the builder figured that no matter whats going on as far as a downside, it would turn around eventually and hopefully when he’s done building.

[org.whodat]

I always figured that the builder figured that no matter whats going on as far as a downside, it would turn around eventually and hopefully when he’s done building.

Wrong, many of the smaller builders have all their own money committed to their development, if it don't sell they keep building to keep the money flow going so they can eat. But they are really digging the hole deeper. Where I live we have lots of homes that have been on the market for two are three years but new one are built every day.

[NVDave]

In the past, oh, 20+ years, that was indeed true.

This ain’t like the past 20+ years. This housing boom was funded by funny money on the way up, and that funny money won’t be returning to the market any time soon. The resulting overhang in housing supply will take a long, long time to work off and in some markets, the builders might not be in a profitable position on a per-house sale for two or more years. Previously, it was thought that at worst, a housing slump might hit them in the earnings for six to nine months before things turned around, much like the 1992 slump in California, etc.

People still aren’t “getting” just how different this situation is. This isn’t a housing slump. This is a liquidity crunch, and since most people cannot buy a house without borrowing money, and in the last three years, a very significant portion of the home buyers were using “creative” financing that won’t be coming back anytime soon (if ever), the home builders are looking off a cliff, not down a hill.

Too many people don’t understand how dependent the US economy is upon cheap and easy credit, for everything from mortgages and auto loans to M&A deals and hedge/private equity fund buy-outs. The bankers are under their desks, curled up in a fetal position, while their loan portfolios continue to unravel around them. They know that the Fed isn’t coming to their rescue (in the form of gratuitous flinging of money into banking books), and even if the Fed changed their minds today, it is really too late to turn around the problems that have already started to snowball.

This is why Merrill and Goldman have come out with predictions of recession or marked GDP slowdowns: take away the liquidity for lending, and you’ve just pulled the wind out of the US economy’s sails.

[Cable225]

KB hires more illegals than any other builder........I hope they slip into Chapter 11 !!!!!!!!

While you are busy cheering on the failure of an American homebuilding company please try to remember that KB Homes, much like K. Hovnanian, Lennar, Pulte, and others employ thousands of people that have zero day-to-day interaction on a construction site.

IS, HR, accounting, and other support functions are all manned by people that have no determination who works on a construction site and don't know the first thing about building a home. They're just regular people busy losing their jobs due to massive layoffs in a slumping industry.

But by all means, don't let that stop your celebrating.

[Lorianne]

If they are losing money, they are building too many houses, poisoning their own well, so to speak.