The company noted that buyers were adjusting to higher mortgage rates, and the more stable rate environment was seen as a positive factor.Demographics were also favorable, particularly in the first-time and affordable first-move-up segments that KB Home primarily serves.Market dynamics were characterized by low existing home inventory and limited availability of new homes at their price points.After all, mortgage rates haven't come down.ĭuring its earnings call, the company also expressed a positive outlook for the long-term housing market. I was surprised to hear that the use of buydowns has been reduced. This is good news, as home builders have used rate buydowns to ease the burden of high mortgage rates on buyers. The selective use of rate buydowns was employed when buyers needed to qualify, although this occurred in fewer communities compared to earlier in the year. The remaining one-third of communities saw flat or lowered pricing yields, which only represented a handful of communities. The average selling price in 2Q23 was 3% lower versus 2Q22 at $480K. This price increase is expected to benefit the company in early 2024 when these homes are delivered. However, as demand improved and markets began to normalize, KB Home was able to raise prices in about two-thirds of its communities. In late 2022 and early 2023, as more large community backlogs were converted to deliveries, pricing was adjusted to stimulate sales based on current market conditions. The company focused on optimizing each asset on a community-by-community basis, balancing pace, price, and margin. KB Home's backlog at the end of the second quarter consisted of nearly 7,300 homes valued at approximately $3.5 billion. Year-on-year new orders were up 1% to almost 4,000 units. In the first quarter, KBH saw a sequential strengthening of net orders. The overview below shows the details that I will discuss in this article. Having that in mind, let's dive into the 2Q23 details. However, due to a much higher average selling price of more than $700K, it becomes the top-tier region responsible for roughly a third of its revenues. With that said, the company generates most of its revenue on the West Coast, where it delivers 22% of its homes. In 2Q23, roughly half of its buyers were 1st-time buyers, which is a group that tends to be highly price-sensitive and dependent on affordable homes, as they do not have built home equity in prior homes. This model aligns demand with supply, as the company does not build homes in anticipation of demand, which increases visibility and reduces risks that come with holding a large number of unsold homes. With that in mind, KBH is a builder that uses the Built to Order model. It also helped GAAP EPS to come in at $1.94, which was another blowout number, as analysts had expected this number to come in $0.60 lower. Needless to that, this is a significant beat. In its second quarter, KBH reported $1.77 billion in revenue, which is a year-on-year improvement of 2.9% and $350 million higher than expected. Let's start at the top with the headline numbers that hit the wires first. So, let's get to it! The Unexpected Bull Market In this article, I'll walk you through these earnings and add my own data and comments to management's observations to assess the risk/reward at this new all-time high. Not only that, but the company also saw support from stronger orders, higher margins, and a solid pricing outlook. The company just released its 2Q23 earnings, which came in much higher than expected. KBH stock rallied by 107% from its 52-week high and is currently trading at a new all-time high. One of the beneficiaries of this is Los Angeles-based homebuilding giant KB Home ( NYSE: KBH). Now, we're dealing with another trend of soaring homebuilder stock prices despite a hawkish Fed, high rates, and poor economic growth. One of them was the massive and unprecedented appreciation in used car values, which turned old cars into investments. Ever since the pandemic hit, we've been dealing with a number of unusual macro developments.
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