Home Builder Executive Sees Opportunity Amidst Slower Florida Housing Market

A sudden doubling of visitors to what had been a lackluster sales center at one of KB Home’s (KBH) Florida housing market developments recently caught CEO Jeff Mezger’s attention.

What had sparked the turnaround in this period of waning Florida mortgage demand and stagnant home sales?

Perhaps managers there had come up with a selling point that could prove useful nationally. Maybe the renewed interest by potential buyers was a sign that good times were coming back to the housing market.

A quick call to the sales chief gave him the answer:

“They got rid of the alligator living in the pond across from the model homes,” says Mezger, laughing.

More than a few alligators are affecting the housing market, now struggling with an oversupply of homes, foreclosures and falling Florida home prices.

Despite all that, construction crews are at work on three housing projects here, including one for KB Home, bulldozing pastures along a main road just off I-95.

Although he’s been with the company since 1993, Mezger has held the top job for five months, taking over in November after longtime CEO Bruce Karatz resigned amid a stock-options backdating scandal.

Despite the housing market’s troubles, the 51-year-old Mezger is relaxed, almost upbeat.

“Tough markets are an opportunity,” he says.

If so, Mezger has plenty of opportunity:

• Florida mortgage rates remain near historic lows.
• About 15 percent of KB’s already-built homes remain unsold.
• The firm’s goal is 10 percent.
• Nationally, KB owns more than a three-year supply of undeveloped lots.
• And it saw an 84 percent drop in first-quarter earnings.

About 179,000 new homes from all builders — a 43 percent increase over last year — sit unsold nationally, said Lawrence Yun, economist at the National Association of Realtors.

“I would say the housing market is near the bottom, or could bounce along the bottom for a while,” says Rashid Dahod, an analyst at Argus Research.

In what he describes as a “realistic,” not a “gloomy,” outlook, Mezger says he doesn’t see the market improving much before next year.

On Wednesday, Mezger visited a planned community called Samara Lakes, a few miles from the nation’s oldest city, St. Augustine.

It’s one of the 555 residential projects underway in the USA and France by Westwood, Calif.-based KB Home, the nation’s fifth-largest home builder.

In the Jacksonville housing market, where Samara Lakes is about half completed, there’s a 13-month supply of homes. Still, at Samara, only 6 percent of the already constructed homes are unsold.

Mezger reminds naysayers that the real estate market - like the Florida home loan market - is cyclical. Demand can always be counted on.

“While we were sitting here, someone got a job, someone got married, someone relocated or had a child,” Mezger says.

“Everyone wants to own a home.”

That’s a lesson Mezger learned early. His parents owned a small firm that custom-built about 20 homes a year in the Chicago area.

While other college students stressed about theiremployment interviews, Mezger calmly knew where he was going after graduation with an economics degree from DePauw University: straight into the family business.

But 18 months after Mezger’s graduation, his father died of lung cancer at 49. The banks asked then-23-year-old Mezger to personally guarantee all the loans. He decided against that.

After helping his mother, an architect and concert pianist, to liquidate the business, Mezger was hired in August 1979 by real estate developer U.S. Home in Chicago.

But the fact that the family business was sold doesn’t mean that Mezger’s family isn’t still involved. He talks with his mother, now 80, about once a week.

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