Last week, the Washington Post had an interesting report about the ways in which some homebuilders are responding to the softening market for new homes:
LOS ANGELES — KB Home is discovering that less could be more when it comes to luring skittish buyers in a housing slump. In recent months, the company has rolled out a new line of smaller, more affordable homes that it hopes will jump-start sagging sales.
The move by one of the nation’s largest homebuilders comes amid a worsening housing slump that analysts now say could last for several more years.
“Smaller homes generate lower revenues, but they sell faster, therefore the cash returns are better,” said KB Home’s chief executive, Jeffrey Mezger.
Other major builders, including Fort Worth, Texas-based D.R. Horton Inc., also have started downsizing some home offerings. But KB Home has led the way, said Greg Gieber, an analyst with A.G. Edwards & Sons Inc.
“They understand the balance, what they can take away and how much they can reduce price having taken that amenity away,” he said.
While it’s unclear what impact smaller, less expensive homes will have on the new home market, but the move that KB is making makes sense. When the market is depressed, it doesn’t make sense to focus on the 3,000 square foot and up homes that builders have been known for, especially in this neck of the woods.
KB’s announcement comes amid signs that the new home market will continue to be sluggish for some time:
Meanwhile, the Commerce Department reported that sales of new homes fell in May by 1.6 percent, the fourth decline in five months. The median selling price of a home fell nearly 2 percent to $236,200.
Some analysts are now projecting it could take as long as four years for builders to sell off excess inventory. Homebuyers can expect more discounting this year, according to Gieber and other analysts.
And maybe the opportunity to buy a house that a sane person would be able to fill.
