In response to changing market conditions in Florida and Texas, leading homebuilder KB Home (NYSE:KBH) has decided to slash home prices in Austin, San Antonio, Orlando, and Jacksonville.

What Happened: According to KB Home’s Chief Operating Officer, Robert McGibney, the company has reduced home prices in these regions due to shifts in the housing markets of Florida and Texas.

Earlier this week, the company reported third-quarter financial results. The company  reported third-quarter revenue of $1.75 billion, beating analyst estimates of $1.728 billion. The U.S. homebuilder reported third-quarter earnings of $2.04 per share, beating analyst estimates of $2.02 per share. 

"We experienced variability in demand across the quarter, with softening in late June through July, as buyers continued to evaluate elevated mortgage interest rates, and general economic concerns were rising. As rates moderated in August, our net orders improved," said Jeffrey Mezger, chairman and CEO of KB Home.

According to the ResiClub report, KB Home expects full-year 2024 housing revenues in the range of $6.85 billion to $6.95 billion. Average selling prices for the full year are expected to be approximately $490,000.

According to McGibney, the company has witnessed a revival in sales since the implementation of the price cuts, especially in August, with sales improving each week of the month and continuing into September.

Also Read: KB Home Slips After Earnings: What’s Next for Homebuilders?

ResiClub highlighted that the markets of Austin, San Antonio, Orlando, and Jacksonville are among the few metro area housing markets where active inventory for sale has bounced back to pre-pandemic levels. This rise in inventory was flagged as a critical metric to monitor for potential falling home prices.

Despite the price reductions, KB Home’s net new orders in Q3 2024 remained essentially unchanged compared to Q3 2023. The company’s gross margin continues to slowly compress after skyrocketing during the Pandemic Housing Boom, but it has not yet fully returned to pre-pandemic levels.

Why It Matters: The decision by KB Home to reduce prices in these key markets is a significant indicator of the changing dynamics in the housing market. The increase in active inventory, coupled with the company’s steady sales despite price cuts, suggests a shift in consumer behavior and market conditions.

This could potentially impact other homebuilders and the overall housing market in the future. As such, this development warrants close monitoring by investors and stakeholders in the real estate sector.

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