The new home construction market recovered at a steady pace in the second half of 2014 after a slump at the beginning of the year thanks to overall economic growth, improving job numbers, growing consumer confidence, moderating home prices, stabilizing mortgage rates and a low level of housing inventory. Homebuilders in general seem quite optimistic about improving demand in the future.
This spirit is also reflected in the way KB Home (KBH) has unveiled a series of new communities through Dec 2014.
In December alone, the homebuilding company offered two new communities called Fire Rock Ranch in Chandler, AZ. and a Southgate community in Gibsonton, FL. The company also unveiled a high priced luxurious community called La Ventana in Rancho Cucamonga, CA.
In addition, KB Home also unveiled Design Studio in Centennial, Denver, CO. The new KB Home Design Studio will help home shoppers at 12 Denver area locations to customize their homes according to their preferences. Homebuyers will enjoy the flexibility to design their new homes. They are ready to pay more to incorporate their personal preference, thus driving average selling price and revenue increase. KB Home is thus opening more design studios, expanding the size of existing stores and introducing new displays.
With the housing market stabilizing, KB Home has started rolling out communities in highly favorable submarkets, primarily in the Central and West Coast regions. The company is also shifting focus from first-time buyers to higher-income and more experienced move-up buyers; who have a higher potential to qualify for home loans.
Though the introduction of new communities is in line with the company’s strategy of increasing community count in upcoming quarters, we note that the company has not been performing well lately owing to several headwinds such as shortage of buildable lots and skilled labor, rising input costs and a lack of geographic diversity. In fact, the company reported declining number of homes delivered and sequentially softer order trends in the last reported third quarter 2014.
KB Home carries a Zacks Rank #4 (Sell).
Other Stocks to Consider
Better-ranked stocks in the building/construction industry worth considering include Beazer Homes USA Inc. (BZH), PulteGroup, Inc. (PHM) and HeidelbergCement AG (HDELY). While HeidelbergCement sports a Zacks Rank #1 (Strong Buy), Beazer Homes USA and PulteGroup hold a Zacks Rank #2 (Buy).
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