Case for Sluggish Homebuilder Rebound, KBH Earnings After the Close

Core Viewpoint - The home building sector, particularly KB Home, is facing challenges with declining sales and margins, leading to a negative outlook for earnings in the near term, with expectations for a turnaround not anticipated until 2026 at the earliest [3][6][7]. Company Summary - KB Home is expected to report adjusted EPS of $1.50 for Q3, with revenue projected at $1.6 billion [1]. - The company has struggled with sales pace and has overbuilt spec supply, resulting in a year-to-date price decline of approximately 10% [3]. - The earnings and orders for KB Home are expected to be down year-over-year due to these challenges [3][6]. Industry Summary - The home building industry has been negatively impacted by high mortgage rates, with most builders, including KB Home, experiencing margin compression [3][11]. - Builders have been competing by cutting prices and offering incentives, such as below-market mortgage rates, to attract buyers [7][8]. - The recent Fed rate cut of 25 basis points has not significantly affected the market, as many builders have already been offering lower rates throughout the year [8][9]. - Builders focused on build-to-order rather than spec homes are better positioned to manage margin pressures, with those serving entry-level markets facing the greatest challenges [11][12][13].