KB Home launches 'green' communities in Bay area
KB Home ($23.04 -0.66%) wants to build energy-efficient homes on nearly 900 lots in several San Francisco Bay area communities.
But will reticent consumers want to buy?
The Los Angeles-based volume builder — whose stock price tumbled Wednesday to a 52-week low — is launching the projects during a still-shaky housing market, but consultants say the Bay area is one of the few markets with strong fundamentals for homebuilders.
The new residential developments are in the cities of Dublin, Fremont, Martinez, Morgan Hill, Petaluma, Santa Clara and Walnut Creek. KB opened several model homes in the developments where they will offer single-family residences and attached town homes. Additional model homes are scheduled to open this fall.
KB said all homes in the communities will be Energy Star and GreenPoint rated to operate more efficiently — something that should play well in the Bay area where green isn't just about cost efficiency but plays to people's cultural and political ideologies, noted Dean Wehrli, senior manager with John Burns Real Estate Consulting.
"Demand for lots in those key areas is actually pretty intense," said Wehrli, who said the area tends to be chronically under-supplied.
"The Bay area is probably the strongest housing market in California, maybe Orange County rivals it," he said. Still, some areas are better off than others with Walnut Creek being a "golden address" but KB may find the more blue-collar Martinez a bit more challenging, Wehrli said.
Sales of newly built homes fell 0.7% in July — to their lowest level in six months, according to data released this week by the Commerce Department. Analysts said the housing market has years of stalled recovery ahead.
New home sales will compete with a flood of distressed properties still on the market, which typically sell at a discount although the numbers of distressed properties competing with new home sales in California are declining. In San Francisco County, 17.6% of all sales during the first quarter were either REO sales or short sales, according to RealtyTrac, down from nearly 20% in the year-ago quarter. In Contra Costa County, where the city of Martinez is located, 51.6% of all homes sales during 1Q were foreclosure-related sales, down from 53.2% a year ago.
Still, San Francisco has performed better than many others because of its desirability and limited land supply, which has made it immune to big housing declines, said Scott Sambucci, vice president of data analytics for Altos Research.
Homebuilders may also be taking advantage of cheap land, he noted, and consumers may take the plunge if they can get a good deal.
"If I can get a brand new house for $300 a square foot vs. a house that's been lived in for $250 per square foot, maybe I'll just buy a new house," he said. That could be true even in struggling communities flooded with REOs like Martinez where consumers may not have the cash to pay for extensive renovations. Getting a new house with a 3% down FHA loan that won't require any significant work for 10 years might be very appealing, he said.
Nationwide, weak job creation and uncertainty about job stability could mean slow movement on new home construction, analysts predict, with record-low mortgage rates not enough to move the market.
National builders continue to struggle as homebuyers stay on the sidelines. KB's second-quarter loss widened as home sales declined and revenue fell during the three months ended May 31.
The homebuilder posted a second-quarter loss of $68.5 million, or 89 cents per share, compared to a loss of $30.7 million, or 40 cents per share, a year ago.
Write to Kerry Curry.
Follow her on Twitter @communicatorKLC.
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