KB Home CEO sees U.S. housing market declining in '08

Discussion in 'Wall St. News' started by S2007S, Jul 20, 2007.

  1. S2007S


    Even though the DOW touched an all time high yesterday problems are still on going in every corner of the economy. How many talking heads over the last 2 years said a bottom was in for the housing industry, I have posted dozens of articles on housing and how the bottom is not in and will not be in for a very, very, very long time. Some people here got tired of hearing the news, well the news is still out there and wallstreet continues to to push aside. You can only push it aside for so long. The bottom is not in and wont be until 2010. Dont believe the talking heads and everyone saying buy now, the time is not now. Hold off, when the bear comes to wallstreet and stocks are down 20% then I think it will be time to step in and buy.

    UPDATE 2-KB Home CEO sees U.S. housing market declining in '08
    Thu Jul 19, 2007 6:50PM EDT

    By Ilaina Jonas

    NEW YORK, July 19 (Reuters) - The chief executive of KB Home (KBH.N: Quote, Profile, Research), the No. 5 U.S. home builder, said on Thursday he does not expect the overall U.S. home market to bottom out until the end of next year and that prices will not increase until well into 2009.

    "By the end of '08 it will start to stabilize," Jeffrey Mezger told Reuters. "Then it will start to go back up in '09. I think it will take a year."

    It was one of the most recent and grimmest predictions by an executive in the housing or housing-related industry.

    On July 18, Gregory Hayes, vice president of accounting and control at United Technologies Corp. (UTX.N: Quote, Profile, Research), said the sagging U.S. housing market likely would continue into the latter part of 2008. The diversified manufacturer makes Carrier air conditioners for homes and businesses.

    Last month, J. Larry Sorsby, chief financial officer of home builder Hovnanian Enterprises Inc. (HOV.N: Quote, Profile, Research), said his company hoped 2008 wouldn't be worse that 2007. In any case, it would likely not host a comeback.

    Robert Toll, CEO of luxury home builder Toll Brothers Inc. (TOL.N: Quote, Profile, Research), said he didn't expect the market to rebound before April. Unlike Mezger, Toll predicted a rebound would be quick and strong.

    In March, Donald Tomnitz, CEO of D.R. Horton Inc. (DHI.N: Quote, Profile, Research), the largest U.S. home builder, said he believed builders would be able to start raising prices by January 2008. However, that forecast is likely to change next week when Horton releases its fiscal third-quarter results. Last week, the company said it expected to post its first quarterly loss since it became a publicly traded company in 1995.

    The oversupply of existing homes on the market is thwarting efforts by U.S. home builders to spur demand by cutting prices, he said, adding that tightened mortgage requirements after the subprime mortgage crisis were not the chief reason for weakness in the U.S. housing market.

    "The bigger factor to me is how many of the markets have this huge resale inventory that has to clear and is going to keep pressure on pricing," Mezger said. "In a lot of the markets we're in the new median price is below resale."

    He said that in Southern California, Las Vegas and parts of Florida, such as Orlando, the median price of a new home is less than that of an existing home.

    "In normal times in a market in balance, new homes carry about a 10 percent premium over resale.

    "If today new homes are priced below resale and still not selling, and you have this huge glut of resale inventory, until those prices get back down and they could go low enough for new homes to go down again, we're going to have an oversupplied market," he said.

    Mezger was in New York on his way back from France where he closed on the sale of the company's 49 percent stake in the formerly publicly traded French subsidiary, Kaufman & Broad SA (KBH.PA: Quote, Profile, Research).

    KB, based in Los Angels, reaped net proceeds of $550 million from the sale, which it may use in part to pay down existing debt while waiting out the U.S. housing slump.

    The company has cut jobs by about 35 percent since the market began sinking in late 2005.

    "The resale inventory levels have got to come down for it to stabilize," he said. "If they do by the end of '08 you'll start to see some traction in demand and supply in balance."

    Shares of KB Home closed up 20 cents at $36.32 on Thursday.

    Year-to-date, KB shares have declined 29 percent, while the Dow Jones U.S. Home Construction Index (.DJUSHB: Quote, Profile, Research), a yardstick that measures home builder share performance, has lost 27 percent of its value.
  2. maxpi


    Housing, if it follows the cycles of the past, should continue to decline for years to come. The reasons are obvious, lenders have tightened requirements, first time buyers are out of the game, move up buyers have nobody to sell to... forgetaboutit. It happens exactly the same way every time.