KB Home (KBH), Housing Competition Heats Up Out West

KB Home (NYSE:KBH) has been scooping up acreage in California as it prepares to develop new housing communities in the San Francisco Bay area.  The Los Angeles-based home builder just acquired sites for 182 new homes for a pair of communities in Dublin, California. KB Home is also expanding its Southwestern footprint in Austin, Texas where it plans to develop GeorgeTown Village, which will consist of 184 new home sites.

The developer is also doing something that is reminiscent of the auto industry. KB Home is starting an in-house financing arm through a partnership with Nationstar Mortgage Holdings Inc (NYSE:NSM). The new division, dubbed Home Community Mortgage, is structured as a limited liability company. It will provide financing options to KB Home customers and an added revenue stream for the home builder.

KB Home (NYSE:KBH)Last month, KB Home announced that its quarter-to-date preliminary net orders are trending 54% above 1Q 2011 levels. Shares of KB Home are up 14% year to date and the stock is slightly below its 52-week high.

Housing IPO

Nonetheless, KB Home, along with the rest of the housing sector, must make way for some new competition. Tri Pointe Homes Inc (NYSE:TPH) recently completed a $233 million IPO in which its shares advanced 12%. The newly public company expects to net $156.3 million and intends to invest in land, development, and home construction throughout the West and Southwest with the proceeds.

While TRI Pointe isn’t entirely new to the housing scene, as it was formed at a precarious time for housing in 2009, it is new to the equity capital markets. TRI Pointe owns some 9,600 lots across California, Arizona, and Colorado, according to the company’s S-1 filing. Sales at the company increased from $4.1 million in 2010 to $26.5 million in September 2012. TRI Pointe has yet to attain profitability.

TRI Pointe Homes was formed after the worst of the housing crisis had surfaced. Management began making land acquisitions in 2010 upon receiving a capital injection from Starwood Funds. As a result, TRI Pointe doesn’t own any “distressed legacy assets” in economically stagnant places, the company indicated in its S-1 filing.

Although TRI Pointe Homes is investing in California, which is still recovering from the housing crisis, it was able to select its properties with the added benefit of hindsight of the credit crisis, while some of its competition may still be left with unwanted land. Timing has helped TRI Pointe in its recruiting efforts, and the company is led by several industry veterans from William Lyon Homes, which was a publicly traded company through 2006.

Ghosts of Crisis’ Past

As good news continues to unfold in housing, the capital markets are still being haunted by the sub-prime crisis of yesterday. The U.S. government is suing ratings agency Standard & Poor’s, which is owned by The McGraw-Hill Companies, Inc. (NYSE:MHP), for falsely representing the credit worthiness of the debt securities dating back to 2007 that imploded.  The lawsuit – one that S&P calls “unjustified” and without legal merit” in a press release — could fetch as much as $5 billion in damages, according to “The Wall Street Journal.” Shareholders are taking the brunt of this fight so far with McGraw Hill shares dropping more than 10 percent on Tuesday, the day the lawsuit was filed, which was the stock’s worst performance in a quarter-century, as pointed out by the WSJ.

The landscape in the housing market has shifted over the past five years and companies like KB Home are adapting to the new environment. Its decision to expand into financing is innovative, which helps to make this sector interesting once again despite the battles that are still being fought in and around these stocks.

The article Housing Competition Heats Up Out West originally appeared on Fool.com and is written by Gerelyn Terzo.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!