Wednesday, September 24, 2014

Lawler on Homebuilder KB Home and New Home Sales Report

by Calculated Risk on 9/24/2014 04:35:00 PM

From housing economist Tom Lawler: KB Home: Net Orders Up 5% YOY, Orders/Community Flat; Deliveries Down on Delays in Construction Schedules and Customer Mortgage Loan Closings

KB Home reported that net home orders in the quarter ended August 31, 2014 totaled 1,827, up 5.2% from the comparable quarter of 2013. Net orders per community were virtually unchanged from a year ago. The company’s sales cancellation rate, expressed as a % of gross orders, was 31% last quarter, down from 33% in the comparable quarter of 2013. Home deliveries last quarter totaled 1,793, down 1.8% from the comparable quarter of 2013, at an average sales price of $327,000, up 9.3% from a year ago. The company’s order backlog at the end of August was 3,432, up 12.9% from last August.

In its press release the company said that “(d)eliveries in the quarter were tempered by delays in construction schedules and customer mortgage loan closings that resulted in some deliveries being deferred to the fourth quarter.” Delays in customer mortgage loans closings were mainly related to a poorly-executed transition to Home Community Mortgage, LLC, the company’s new mortgage banking joint venture (with Nationstar).

The press release also included commentary on the average selling price.

“The overall average selling price rose 9% to $327,000, up from $299,100 for the same period of 2013. The Company's average selling price has now increased on a year-over-year basis for the last 17 quarters.

“The average selling price increased primarily due to the Company's continued positioning of its new home communities in land-constrained submarkets that typically feature higher household incomes, higher median home sales prices and stronger demand for larger home sizes, as well as generally favorable market conditions.

“Average selling prices were higher in all of the Company's homebuilding regions compared to the same quarter of 2013, with increases ranging from 9% in the Central and Southeast regions to 21% in the West Coast region.”
The company’s CEO said that it had seen “(d)uring the third quarter there was an appreciable uptick in our traffic levels,” and in the conference call officials said that traffic last quarter was up 24% from a year ago.

In the previous quarter’s earnings conference call on June 27, KB Home’s CEO raised some eyebrows by saying that the company had seen some “re-emergence” of first-time home buyers, though in response to questions he noted that observed increases in first-time home buyers were in a limited number of areas with strong job growth. He did not talk about re-emerging first-time home buyer demand today.

He did, however, mention that household formations have been increasing, which suggests that his staff either hadn’t looked at or didn’t want to show him the latest CPS and ACS data on households.

And from Tom Lawler on the New Home sales report: Census Estimates that New SF Home Sales Jumped in August; Sales Estimate for the West Surged to Fastest Pace in Almost Seven Years, But Will Probably Be Revised Downward

Census estimated that new SF home sales ran at a seasonally adjusted annual rate of 504,000 in August, up 18.0% from July’s upwardly-revised (to 427,000 from 412,000) pace. (Revisions to May and June sales were de minimis). According to Census estimates, new SF home sales in the West ran at a seasonally adjusted annual rate of 153,000, up 50.0% from July’s pace and up 84.3% from last August’s pace, and the highest seasonally-adjusted sales pace since January 2008. Census’ unadjusted estimate for new SF home sales in the West last month was the highest for an August since 2007.

Based on limited anecdotal and builder reports, the Census estimate for new home sales in the West seem way to high, and a significant downward revision next month would not be surprising.

New Single-Family Home Sales, Census Estimates
  TotalNortheastMidwestSouthWest
2012 (Full Year)368294719597
2013 (Full Year)4293161233105
July 2014 (SAAR)4272458243102
August 2014 (SAAR)5043158262153