Dive Brief:
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Wall Street’s interest in homebuilder stocks waned this week with the news that big builder KB Home’s fourth-quarter profit margins were weaker than predicted.
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Builders D.R. Horton and Meritage Homes have already warned investors that the industry's ending healthy margins last year could level off this year as land prices increase and homes appreciate more slowly.
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Investors reacted on Tuesday by ditching KB Home stock, which took its worst hit since 1992. KB CEO Jeff Mezger said he expects the company’s first-quarter margins to miss expectations as well, as demand for homes weakens in California and the builder uses some of its profits to offer homebuyer incentives.
Dive Insight:
Analysts have attributed tighter profits among the country’s largest public builders to the rising cost of labor and materials, and are predicting similar declines for other builders’ stock. Vicki Bryan, a senior analyst for bond-research company Gimme Credit, told The Wall Street Journal: “I do expect to see more of this. We’ve had two straight quarters of weak pricing power. … The best, cheapest land out there was bought long ago.”