Dive Brief:
- California-based homebuilder KB Home announced it is pulling out of Washington, DC, in the next year to concentrate on real estate markets where it has a more significant presence, according to The Wall Street Journal.
- The homebuilder said it would complete work currently under contract in DC, where the company has built approximately 2% of its stock.
- KB Home CEO Jeffrey Mezger said the company entered the DC market too late in the last housing cycle and has "not been able to establish the scale necessary to generate solid returns to gain enough traction and earn sufficient revenue." The company will take a $6 million to $8 million pretax charge this quarter when it moves, according to The Journal.
Dive Insight:
KB did not indicate exactly where it would redistribute its DC sources, but in a conference call, Mezger said the San Francisco Bay Area is its most profitable business unit per home built, the Washington Business Journal reported.
In contrast, homebuilder Hovnanian announced in March that it would cease operations in San Francisco, using words like "frothy," "lofty," and "speculative" to describe the market and land prices. Similar to what KB indicated about DC, Hovnanian said its San Francisco operations were relatively small, but it took a 15% hit in its stock price when it announced that it was getting out of the Raleigh, NC, Tampa, FL, and Minneapolis homebuilding markets as well.
In a January CBS News interview with KB Home's CEO, Mezger said the greatest challenge that homebuilders currently face is finding appropriate parcels of land to build. He said the problem finding skilled labor adds 10 to 13 days to the construction schedule of a house but that "it's a much nicer problem to have than 'Can we sell a house today?'"
KB Home, the sixth-largest homebuilder in the U.S., focuses a significant portion of its business on first-time buyers. The company's sales mix includes 50% first-time buyers, 15% move-down and 35% first and second move-ups, according to the CEO.