iBooyah.com: KB Home (KBH) lowers guidance for 2006
The recent news of declining new home sales is actually good for the economy. It is about time people come to their senses. The price increases is unsustainable and has put home ownership out of reach for ordinary people. In the past few years, the homebuilders were basically taking advantages of the demand by jacking up their prices monthly. This time last year, I remember helping my parents fill out a long application for a KB home (KBH) that I felt was overpriced. By the way, the application was just for a lottery. We decided all the frenzy was too much decided to wait. Glad we waited as the same house today is now 20K less. I still think it is over priced, we’ll continue to wait longer.
In the last five years, a lot of money went into real estate. It seems everyone bought a second home and became landlords. Those that have bought early in the cycle have made a lot of money, no doubt. However, those that have recently bought at the height are probably biting their nails. Moreover, the folks that bought at the height probably financed it using a “fancy” loan such as the interest only loans. Interest only loan was the only way some folks can afford the sky high prices.
Today, we received news another homebuilders have lowered their guidance for the rest of this year. Here is an interesting quote:
"Our earnings expectations for the third quarter and full year reflect an increasingly challenging housing market, where the supply of new and resale home inventories has built up in recent months in markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years," said Bruce Karatz, chairman and chief executive of KB Home (AP, 2006)
KBH is trading at $38.77 in after hours on September 06, 2006. As I previously predicted, KBH is on its way towards $35. This guidance will take KBH stock down a few more points. It is my view if this stock falls below $35, it would represent an excellent entry point. However, I would not bet the farm, but acquiring a small position would not be a bad idea.
