KB Home is a West Coast–based homebuilder that focuses on the first-time homebuyer
KB Home (KBH) is a Los Angeles–based homebuilder that focuses on first-time, move-up, and active adult homebuyers. Its price point is at the low end of the different homebuilders. It’s more similar to Lennar (LEN) or PulteGroup (PHM) than any luxury builder, such as Toll Brothers (TOL) or NVR (NVR). It also has a financial services arm that provides title and insurance services
KB Home’s geographical advantage
KB Home has exposure to some of the hottest real estate markets in the US. The majority of its business is in California and Texas, although it has some exposure to the Southwest and mid-Atlantic states. The company noted on its call that it’s not seeing weakness in Texas, which was a fear of the analyst community. In these MSAs, prices have been rising much faster than in some of the real estate indices like Case-Shiller. KB’s East Coast exposure is in the red-hot Washington, DC, market, Charlotte, and Florida.
One big advantage of this is that KB has very little exposure to the geographies that have been lagging the real estate sector, particularly the Northeast, where state laws are very borrower-friendly, which has been hampering real estate price appreciation.
Land acquisition strategy
KB Home’s land acquisition strategy is through options, primarily. This means there’s no specific performance consideration. If the company decides it doesn’t want to buy the property, it simply lets the option expire. It has a preferred lending relationship with Nationstar Mortgage (NSM). Note that the mortgage business has been having some growing pains.
The first-time homebuyer accounts for 60% of KB Home’s business.