KB Home Warns of Slower Sales as Inventory Grows

Home builder KB Home said negative trends in the U.S. housing market could persist in 2007, as inventory accumulates amid higher interest rates, according to a filing with the Securities and Exchange Commission on Friday.

“Conditions in many of the markets we serve across the U.S. have become more challenging in recent months,” the Los Angeles-based company said in its quarterly filing with the SEC.

The company said revenue had been hurt by a rise in new and resale home inventories in addition to higher interest rates and cancellation rates.

In the company’s fiscal second-quarter earnings results, KB Home warned that domestic home sales in 2006 would probably fall short of record rates seen in the recent past from excess inventory and higher interest rates that were boosting borrowing costs.

For the quarter ended May 31, the company said it generated 9,908 net orders -- down 19% from the 12,290 net orders reported during the year-earlier period.

“We expect the current negative trends in the U.S. housing market to continue for the remainder of 2006 and possibly into 2007,” the company said.

But KB Home said it remained optimistic about long-term business prospects because of a healthy U.S. economy and the geographical diversity of its homebuilding operations.

“In the long run, we believe the underlying fundamentals of strong demographics and job growth continue to support favorable domestic housing demand,” the company said.