KB Home’s housing market warning: Incentives might hide overpriced homes

The pandemic housing boom has fizzled out, and major homebuilders have had to cut net effective home prices to avoid a deeper sales pullback. Some builders, like Lennar and D.R. Horton, have used larger incentives, such as mortgage rate buydowns, to protect community comps and avoid upsetting buyers. KB Home, on the other hand, prefers outright home price cuts over incentives, as it believes that buyers who opt for rate buydowns may end up overpaying for their homes. According to KB Home's COO Rob McGibney, some buyers are overpaying for homes to get incentives, which could lead to them being upside down when they try to sell their homes. KB Home's net new orders for Q2 2025 were 3,460, which is softer than expected, and the company has had to reposition its communities to offer more compelling value. The company's average community count was in line with projections, but the monthly absorption pace per community was lower than expected. All of the markets KB Home operates in experienced some level of softening during the quarter, with markets like Las Vegas and Texas seeing relatively strong demand, while markets like Sacramento and Seattle faced more significant headwinds. KB Home had to make bigger price cuts in markets where resale inventory is above 6 months, and the company's housing gross profit margin has compressed to 19.3% in Q2 2025. The company has been able to hold off tariff-related cost increases, with only two minor price increases to date, and its costs are protected for almost all of its third-quarter starts under the terms of its supply contracts. Overall, KB Home's Q2 earnings report and earnings call suggest that the 2025 housing market is softer than expected, and the company is taking steps to adapt to the changing market conditions.