The Breakdown

Explaining Southern California's economy

LA-based KB Home expects the housing recovery to continue

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Los Angeles-based homebuilder KB Home reported first quarter earnings on Thursday. And although Southern California's largest homebuilder lost money, it didn't lose as much as last year—and it saw substantial improvements in its overall business.

No one should be surprised. The lack of homebuilding since the financial crisis has led to an inventory crunch. There just aren't enough houses for sale to meet demand—something particularly evident in California. 

Combined with historically low interest rates and the presence of aggressive investors and all-cash buyers in hot markets like L.A., the supply-demand imbalance is driving up prices.

KB Home is responding to the lack of inventory by ramping up building. The company reports "backlog and net orders" in its quarterly financials, and all the metrics KB Home uses to assess future revenues and building activity improved either substantially or dramatically year-over-year.

For example: The backlog of future revenues for the quarter rose to $703.9 million; that's a 53 percent increase from the same quarter last year, which came in at $460 million.

But that change was dwarfed by the spike in new net orders for houses in KB Home's West Coast region: up 133 percent.

Further evidence of the company's bullishness on the California market can be found in how much  it invested in land and land development in the first quarter. Of the $345 million it committed, the majority was in California, according to a statement.

Compared with the first quarter of 2012, KB Home slashed its loss, to $12.4 million from $45.8 million. That's a 75 percent improvement.

And with the housing market clearly improving at an accelerating pace, it's no stretch to accept CEO Jeffrey Mezger's prediction that the company will move out of the red and into the black at some point in 2013.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

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