Insider Q&A: Builder KB Home on outlook for Spring homebuying season

LOS ANGELES (AP) — Rising mortgage rates through much of 2023 kept many prospective homebuyers and sellers on the sidelines and the housing market in a deep slump.

Homebuilders responded by lowering prices and offering incentives like mortgage rate buydowns to help buyers get over their affordability hump. The approach helped lift sales of new U.S. homes 4.2% over 2022, but also cut into many builders’ profits.

Los Angeles-based KB Home, which builds homes in California, Texas, Florida and seven other states, delivered fewer homes and posted lower earnings and revenue in the 12 months ended Nov. 30 compared with the same period a year earlier.

But the company’s new home orders soared in the first few weeks of its current fiscal quarter as mortgage rates eased off their late-October highs.

CEO Jeffrey Mezger recently spoke with The Associated Press about how the recent pullback in mortgage rates could shape the housing market this year and the challenges builders face amid rising labor and land costs.

Q: What are your expectations for how strong demand and sales might be this spring?

A: We see a very similar setup as we enter ’24 as we did entering ’23, in that there’s a really limited resale inventory in most of the markets we operate in. So you have a shortage of inventory, new and used. You have strong demographics — Gen-Z, millennials — are out there in a big way, they want to be homeowners. You have job growth, income growth and rates that have stabilized. if not ticking down. The difference from ’23, we saw the strength in demand come back in December, which is not normal for us. Normally, December’s off from November. In our case, December of ’23 was actually stronger than November. And then in January, as each week went by, sales continued to strengthen. So...