KB Home Cuts Profit Guidance, Lennar Trims Deliveries
KB Home lowered its annual gross profit margin guide to 16.0-16.2% as 30-year mortgage rates stayed above 7%. Lennar also cut its delivery target this month.
Key points
- KB Home lowered its annual gross profit margin guidance to 16.0-16.2% from 16.1-16.5% due to market deterioration.
- Third-quarter net profit fell to $65.3 million, down from $109.8 million in the same quarter last year.
- Mortgage rates above 7% slowed sales in Southern California, reducing average selling prices to $473,000.
KB Home cut its annual gross profit margin guidance to 16.0% to 16.2% from 16.1% to 16.5%. The company cited deteriorating market conditions across its footprint. Third-quarter revenue fell 20% to $1.3 billion.
Net profit dropped to $65.3 million from $109.8 million a year earlier. Deliveries fell 19% to 2,732 homes. Net orders declined 12% to 2,604 units in the same period.
Mortgage Rates Pressure Buyer Activity
Sales weakened in July and August after a strong June. 30-year fixed mortgage rates climbed above 7% after the Federal Reserve's latest rate increase. This shift slowed demand for higher-priced homes.
Southern California saw slower-than-expected sales in the third quarter. Average selling prices dipped to $473,000 from $475,700. KB Home cut prices to respond to these market conditions.
Industry-Wide Adjustments Follow KB Home
Lennar cut its full-year home delivery target earlier this month. The company pointed to high mortgage rates and weak consumer confidence. Economists expect the 7% rate threshold to slow buyers further.
KB Home projects fourth-quarter housing revenue of $1.45 billion to $1.65 billion. It expects deliveries of 3,000 to 3,500 homes. Both figures fall below analyst expectations.
Revenue Outlook Faces Continued Headwinds
The company lowered its housing revenue outlook to $4.9 billion to $5.1 billion. This range is below the prior estimate of $4.9 billion to $5.3 billion. It maintains a delivery target of 10,500 to 11,000 homes.
The Federal Reserve's rate increase directly impacted affordability metrics. Propmodo notes that elevated prices and rates create a stagnant market. Companies must adjust pricing strategies to maintain sales volume.
