MW Home prices fell, but the peak spring selling season was still weak. What's next?

By Tomi Kilgore

KB Home saw quarterly orders for new homes drop 13% and miss expectations by a wide margin. High prices aren't the only reason for the weak demand.

Home builder KB Home lowered its full-year outlook for revenue and profits, as demand for new homes is expected to continue to weaken even as prices fall.

Chief Executive Jeff Mezger said on the post-earnings call with analysts that the company saw strong orders for homes at the start of the fiscal second quarter in March. "However, our net orders declined in April and May, which did not follow the typical spring trajectory," Mezger said, according to an AlphaSense transcript.

Even as prices fell, they still weren't low enough to kick-start demand. Mezger noted that mortgage rates remain elevated and consumers have become more worried about the economy and about international trade relations.

KB Home's stock (KBH) edged up 0.4% in morning trading Tuesday but underperformed both the home construction sector ITB and the rally in the broader stock market.

The company said late Monday that new orders for the quarter to May 31 dropped 13.4% to 3,460 homes, well below the average analyst estimate compiled by FactSet of 3,908 homes.

The value of orders fell even more, down 20.7% to $1.61 billion. That implies that the average price of home orders declined to $465,611 from $508,357.

With consumers growing "increasingly apprehensive," Chief Operating Officer Rob McGibney said the company has lowered prices in some underperforming housing communities in order to halt the increase in unsold inventory and to match market dynamics.

"Despite these actions, demand weakened," McGibney said. "We believe this was due not only to the lack of consumer confidence, but also to mortgage interest rates, which edged up in early April and remain high and variable for the balance of the quarter."

The softer demand and lower prices prompted the company to cut its full-year outlook.

Housing revenue is now expected to be in the range of $6.3 billion to $6.5 billion, down from previous guidance of $6.6 billion to $7 billion.

The company also lowered its outlook for the average selling price to $480,000 to $490,000 per home from $480,000 to $495,000. The outlook for housing gross profit margin - a measure of profitability - was cut to a range of 19% to 19.4% from a range of 19.2% to 20%, as lower prices offset lower construction costs.

That outlook includes an average selling price per home for the current quarter of between $470,000 and $480,000, down from an average selling price of $488,700 in the second quarter, which was itself down from an average price of $500,700 per home in the first quarter.

Meanwhile, the company reported second-quarter net income that dropped 35.9% from a year ago to $107.9 million, while earnings per share declined to $1.50 from $2.15 but still beat the FactSet EPS consensus of $1.46.

Revenue was down 10.5% to $1.53 billion but was above expectations of $1.50 billion.

-Tomi Kilgore

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June 24, 2025 11:41 ET (15:41 GMT)

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