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KB Home Benefits from First-Time Buyers With Good Jobs and Good Credit

DEC 21, 2012 12:55pm ET
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KB Home continues to focus on first-time buyers as 61% of the homebuilder’s deliveries in the most recent quarter were purchased by first-timers.

But due to tight credit conditions, KB Home president and chief executive Jeffrey Mezger admits he is catering to “upper-tier” first-time buyers.

“It is a different type of first-time buyer with a higher household income and a far better ability to obtain a mortgage in today’s underwriting environment,” he said.

In Orange County, the San Francisco Bay Area and Houston, some of these first-time buyers make over $100,000.

They have good jobs and good credit. “In a lot of cases they sat on the sidelines during the frenzy when prices went up so fast. Now they are able to buy in much better locations and at a much better price than in ’06 or ’07,” Mezger said.

The CEO made his remarks during a conference call Thursday on the company’s earnings for the fourth quarter, which ended Nov. 30.

In 4Q, KB Home delivered 6,280 homes, up 8% from a year ago. The average selling price was $246,500—up 10% from 2011.

In response to a question, Mezger said he would guess the “lower half of the first-time buyer pool has been taken out of the market because of underwriting being so tight.”

As underwriting normalizes over time, the Los Angeles-based builder expects to start communities with lower-cost homes to meet that demand.

But he stressed that lenders haven’t loosened yet. “If anything it has gotten a little tighter,” Mezger said.

KB Home reported a loss of $59 million for 2012. But the company expects to be profitable in 2013 and it will be buying land to start new communities.

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