South Florida – Housing Market – Courtesy: Shutterstock – Image by pisaphotography
Homebuilders are starting the 2025 spring housing market more slowly than usual. The massive homebuilder KB Home, which is rated No. 545 on the Fortune 1000, informed investors that last month. Earlier in the month, the even larger homebuilder Lennar expressed a similar opinion.
“Despite a healthy level of traffic in our communities, demand at the beginning of this spring’s selling season was more muted than what we have seen historically,” Jeffrey Mezger, CEO of KB Home, stated in their earnings report. “Despite a healthy level of traffic in our communities, demand at the beginning of this spring’s selling season was more muted than what we have historically seen.” We repositioned our communities to provide the best value in the middle of February, and buyers reacted well to these changes.
Six key conclusions from KB Home’s earnings are listed below.
To keep up with the pace of home sales, large publicly traded homebuilders are adjusting affordability where and when necessary. That can occasionally entail more substantial incentives, such as buydowns of mortgage rates. In other cases, it entails direct price reductions.
In certain markets, KB Home had to do just that during the last quarter due to market downturn.
KB Home Chief Operating Officer Rob McGibney said investors during the company’s latest earnings call, “We carefully and selectively adjusted pricing as needed on a community by community basis to stimulate demand and achieve a higher selling pace.” “Our customers are primarily motivated by our base price, but we also offered mortgage-related assistance to our buyers when necessary.”
“Consumers responded to these adjustments,” McGibney continued. We think we’ve located the market.
According to KB Home, the average sales price in the first quarter of 2025 was $500,700. The homebuilder informed investors that it anticipated an average sales price of between $480,000 and $495,000 for the entire fiscal year 2025.
2. In Florida, KB Home is experiencing the biggest deficit.
Florida was the homebuilder’s softest-performing state in the first quarter, according to COO McGibney, who mentioned this on KB Home’s most recent earnings call. As a result, the business lowered net effective home pricing to better reflect local market realities.
“In the first quarter, Florida was our softest state in terms of sales demand,” McGibney stated. “We took the most pricing action there to find the market because of that.”
He pointed out that the majority of the price reductions or affordability changes KB Home had to make ranged from $5,000 to $30,000 per house. But in Florida, it “had to do more to find that market.”
Particularly, Jacksonville has been a focus. According to McGibney, the metro is currently seeing a housing supply of roughly seven months, which is more than the historical average and is forcing the builder to make more significant price modifications.
The fact that the [Jacksonville] market’s inventory is [now] being absorbed is one encouraging aspect of it. Despite the increased supply, the number of days on the market is actually declining year over year, most likely as a result of a shift in pricing. Thus, the [Jacksonville] market is responding,” McGibney stated.
The company’s Orlando and Tampa areas have also shown signs of weakening, McGibney continued.
3. KB Home’s “strongest” performer is Las Vegas.
CEO Mezger assured investors that the company’s Las Vegas division is one of its biggest and best-performing divisions, often producing the highest gross margins and profitability.
4. The narrowing of homebuilder profit margins persists
Publicly listed homebuilders saw unprecedented profit margins during the 2007 housing bubble as buyer demand surged and home prices skyrocketed. In order to sustain their sales pace as the national housing demand bubble subsided in the summer of 2022, numerous large homebuilders made affordability changes where and when necessary. Margin compression resulted from that.
As homebuilders have once again resorted to affordability adjustments in order to sell unsold completed inventory, which is increasing, margin compression has persisted in recent quarters.
“Our housing gross profit margin was 20.3%, above the midpoint of our guidance for Q1 2025, excluding inventory related charges,” KB Home Chief Accounting Officer Bill Hollinger informed investors. It was 21.6% for the previous quarter of the year. Assuming no inventory-related costs, we project the housing gross profit margin for the second quarter of 2025 to be between 19.1% and 19.5%, and for the entire year [of 2025] to be between 19.2 percent and 20 percent.
“Reduced operating leverage on lower delivery volume, the challenging operating environment, and lower selling prices than we anticipated in January are reflected in our gross margin outlook for both periods,” Hollinger continued.
5. Changes in immigration policy have not yet had an impact.
KB Home and Lennar have not yet experienced any effects from “immigration policy changes.”
Regarding labor, McGibney, COO of KB Home, told investors that “it’s really just been the same outside of the normal things that we would deal with, outside of any kind of regulatory change or ICE or immigration policy changes.” “We haven’t seen anything about immigration at all. There may still be a labor shortage of the usual kind that we could encounter on a daily basis in a normal year, but it has nothing to do with changes in immigration policy.
6. KB Home is monitoring tariffs.
In late March, Lennar and KB Home informed investors that they had not yet noticed any effects from tariffs.
“I haven’t noticed any effects from tariffs… That might be something that will happen in the future. That hasn’t been seen yet. Regarding the lumber, we make an effort to vary the methods by which we lock [in orders]. And over the long run, we’ll have 90 days, perhaps 100, and 120,” COO McGibney informed investors.
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Chris began his writing as a hobby while attending Florida Southern College in Lakeland, Florida. Today he and his wife live in the Orlando area with their three children and dog.
