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Tickers in this Article: TOL, KBH
One of the leading homebuilding companies in the U.S., KB Home (KBH) recently acquired land and lots in two communities in northeast of San Antonio.  About 700 new homes are to be built in the communities of Legend Point and Landmark Pointe. Construction is expected to start from mid 2013.

The company intends to build one and two story single family homes in both the communities. The company will purchase 80 finished and 420 undeveloped lots in Legend Point, with prices of homes starting from $140,000s. On the other hand, the prices of homes in Landmark Pointe will start from $150,000s.

As KB Home begins construction only after a purchase agreement is executed, consumers buying KB homes will get the liberty to plan their homes according to their preference. They will be able to choose homesites, floor plans and other features like faucets and fixtures. They can also opt for an additional bedroom, bath or study, according to their individual preference.  

This process also helps the company turn over its inventory more quickly than its peers, thereby supplying capital for reinvestment. In the long run, this reduces the risk of unsold inventory leading to higher returns on invested capital.

The acquisition of land in Legend Point and Landmark Pointe is in line with KB Home's strategy of aggressively investing in land assets and communities. The company also intends to focus on placing the communities in highly desirable land-constrained submarkets that enable it to sell larger, higher-priced homes, thus driving a strong increase in average selling price.

As such, KB Home recently acquired 65 lots in Fuquay-Varina, southwest of Raleigh, North Carolina to build a new community called Lakestone Village early next year. Lakestone Village will be an addition to the company's existing communities in Raleigh-Durham area.

The rising demand for new homes has led to a favorable situation in the housing market, where inventory levels are dropping and prices are moving up. The demand has been particularly strong for luxury homes. Toll Brothers, Inc., (TOL), another leading luxury homebuilder in the US, has been witnessing strong overall growth over the past few quarters.

This has necessitated the building of adequate number of new homes to maintain the required level of inventory to meet growing demand. Acquiring lots and lands will help the company to capitalize on the increasing housing demand.

With housing market recovery gaining momentum, we have faith in KB Home's strategic initiatives. However, we believe that it may take time to achieve sustainable profitability as the housing market recovery process is erratic and uneven.

We currently have a Neutral recommendation on KB Home. The stock carries a Zacks #3 Rank (a short-term Hold rating).

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