Investors in KB Home KBH -6.89% and the rest of the residential construction industry have a sturdy roof over their heads.
But, if you had told them five years ago what the future trajectory of the stock market and mortgage rates would be, they would have expected to be living large by now. Instead, a basket of homebuilders has appreciated by only about half as much as an index of financial stocks. And KB is actually down 15% over that time.
Sales of new, single-family homes remain stubbornly below their 2006 peak. They also are far lower than levels before the bubble, particularly on a population-adjusted basis.
The current pace still should be good enough to bolster KB’s bottom line. The company, which also reports results Wednesday, is seen posting earnings per share of 42 cents for its fiscal second quarter ended in August, up from 30 cents a year earlier. Analysts think its deliveries rose nearly 9% year over year.
A slowdown in house-price appreciation, sales of existing homes and mortgage applications would seem to bode poorly for KB, which focuses on first-time and step-up buyers. But an uneven recovery in home construction also provides a good underpinning for future sales. In the last five years, about 3 million fewer homes were built than if sales had kept up with the pace before the bubble. That more than compensates for residential overbuilding from 2003 through 2006.
However frustrating a slow recovery may be, it provides a firm foundation for the industry to build upon.
