KB Home faces rising input costs

In its latest earnings report, KB Home (KBH) reported rising input costs. Prices for labor, material, and land are all on the increase. In “KB Home ‘On Offense’ As Its Housing Markets And Pricing Power Strengthen“, I reported the following, including quotes from the Seeking Alpha transcript:

“While KBH is bullish about its business, it is wary about its costs. Costs increased about $1,200 a house, but KBH was able to offset that with pricing. I was a bit surprised that business is strong enough that KBH can actually wield some pricing power, passing on increased costs to its customers. Here is how KBH described the source of the cost increases and their likely impact:

‘We are starting to experience higher costs for labor and direct construction materials such as lumber, concrete and drywall. Through the end of the second quarter, the impact of these higher costs has been offset by sales price increases, which we have implemented in a majority of our communities during the first 6 months of the year. We believe incremental price increases can continue to offset any further cost increases for the remainder of 2012, which should not result in margin erosion but maybe a headwind in relation to our margin expansion plans.’

Moreover, land prices are also on the rise. KBH says that land sellers were the first to detect the improvement in the housing market and they are now able to exert some pricing power:

‘While there’s no question the housing markets are getting better, the land sellers figured it out first. So land prices are going up every bit as fast, if not faster, than home prices are.’

These are signs that the housing market is finally starting a sustained recovery, starting in select markets. For more details on earnings for KBH see “KB Home ‘On Offense’ As Its Housing Markets And Pricing Power Strengthen.”

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