Shares of builder KB Home tumbled more than 13% in early morning trading. Also pushing investors away from the stock was the company earnings report that missed analyst expectations.
For the quarter ended Feb. 29, KB Home's net loss was $45.8 million, or 59 cents a share, down from a $114.5 million loss, or $1.49 a share, a year earlier. Analysts expected a loss of 23 cents a share, according to Bloomberg News.
Signs of a housing market bottom have helped push KBH up 67% this year. As of Thursday's close it was one of the top performers in the S&P 500 Index year-to-date.
But new home orders slipped last quarter – and the company is saddled with debt. Net orders declined 8.1% to 1,197 homes. The cancellation rate rose to 36% from 29% a year earlier.
Its high debt level has prevented KBH from regaining profitability.
KB Home (NYSE: KBH), Homebuilder Stocks Halt Fantastic Run
With KBH already soaring more than 50% this year, now's not the time to buy. Homebuilders typically run up before spring, and with the continued trend of mixed housing data, investors will be cautious to buy in for a continued climb.
"If you were looking for a home run kind of move, you needed to have bought when the stocks were significantly undervalued six months ago," Philip J. Orlando, Federated Investors' chief equities market strategist, told The New York Times.
Homebuilder stocks have been on a six-month rise and in March hit their highest level in two years. The SPDR S&P Homebuilders ETF (NYSEArca: XHB) is up about 57% since September.
KB Home Price History
Federated invested millions in homebuilder Lennar Corp. (NYSE: LEN) after a late summer investment conference delivered a bullish housing market report. Lennar is up a staggering 90% in the past six months.
Now homebuilder stocks' soaring growth is slowing, making them a "Hold."
"[W]e are starting to see fundamental improvement," said Orlando regarding the housing market. "So you may have a situation where instead of stocks falling, maybe they drift sideways. We are not looking for a collapse. We are just not looking for a move up."
This week's slew of housing data supported the theory of an uneven housing market recovery.
The National Association of Home Builders said Monday that its March housing market index, which measures homebuilders' outlook, was at 28, the same level as February. A building permit report Tuesday showed builders requested 5.1% more permits in February, but started construction on fewer units than the month before.
U.S. New Home Sales Struggle With Rising Foreclosures
The U.S. Commerce Department reported Friday new home sales slipped more than expected. U.S. new home sales in February fell 1.6% to a 313,000 annual pace – the second consecutive month of sales declines.
While recent economic data has pointed to a housing market bottom, new home sales continue to be hurt by a new wave of foreclosures that's weakening a housing market rebound.
The heavy backlog of foreclosures is slowly starting to move through the market. With January's mammoth $26 billion mortgage settlement between five major banks and a group of state attorneys general, foreclosures that had been held up for a year or more are now starting to move forward.
"We expect to see foreclosure-related sales increase in 2012, particularly pre-foreclosure sales, as lenders start to more aggressively dispose of distressed assets held up by the mortgage servicing gridlock over the past 18 months," Brandon Moore, CEO of RealtyTrac, told CNN Money.
The foreclosure factor has pushed up the time it takes to sell a new house. The supply of homes at the current sales rate climbed to 5.8 months' worth from 5.7 months in January.
While the housing market may be nearing a bottom, foreclosures will keep it from climbing again, and will cause volatility in homebuilder stocks like KB Home.
KB Home (NYSE: KBH) was down more than 8.5% to $10.28 by 2 p.m. ET.
News and Related Story Links:
- Money Morning:
The Housing Market's Biggest Hurdle
- Bloomberg News:
KB Home Falls the Most in Almost 9 Months After Orders Declined
- The New York Times:
Home Builder Stocks at Highest Point in 2 Years After 6-Month Rise