Homebuilders slow spec builds in weaker housing markets, says KB Home CEO

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One of the clearest messages from KB Home’s leadership during its last earnings call was that the homebuilder—ranked No. 526 on the Fortune 1000—is intentionally shifting away from elevated spec inventory and back toward more built-to-order (BTO)—which will also help firm up its compressing margins given that BTO has higher margins than spec.

“When the supply chain crashed [during the pandemic] and our build times significantly extended, it was very difficult to sell a built-to-order home to a buyer when it was going to take 10 or 11 months to build… You can’t lock the interest rate for that long,” Mezger tells ResiClub. So they did more spec.

That’s over now.

“We’ve significantly compressed our build times… We’re back down to four months or less, which is our historical level,” Mezger said. With shorter cycle times and shifted conditions, KB Home wants to move to less spec.

“For years and years, [built-to-order] was 70% to 80% of our business,” Mezger noted. “In the fourth quarter, deliveries were around 50% BTO.”

In late January 2026, ResiClub interviewed KB Home CEO Jeffrey Mezger and COO Rob McGibney. Beginning March 1, 2026, McGibney will assume the CEO role, with Mezger—who has served as CEO since 2006—moving into the newly created position of executive chairman.

Below are 6 main housing market takeaways from our recent conversation with KB Home.

1. KB Home: Homebuyers risk finding themselves 'upside-down' if they overpay for builder incentives

During an earnings call in June 2025, KB Home’s McGibney—whose company prefers outright home price cuts over incentives when adjustments are needed—said that some buyers turning to competitors are effectively overpaying for new builds to obtain mortgage rate buydowns. If those buyers need to sell in the near term, he warned, they could find themselves underwater and unable to recoup the artificially high base prices they paid.

I asked KB Home about that comment. Mezger and McGibney reaffirmed their stance, saying they’ll continue to lean into “transparent” pricing over incentives.

“We believe in price transparency,” Mezger tells ResiClub. “Our biggest competitor is resale—and [resale] sellers don’t offer incentive packages.”

In the view of KB Home executives, leaning too hard into incentive-driven strategies—when affordability adjustments or net effective price cuts are needed to meet the market—can translate into inflated base prices, larger loan balances, and greater near-term resale risk if a buyer needs to move sooner than expected.

“Our buyers tell us they like the clarity,” McGibney tells ResiClub. “They [our buyers] know exactly what they’re paying for… I think [transparent pricing] really lowers that risk of [the buyer] overpaying for a home and potentially being upside down.”

According to AEI Housing Center, 64% of new single-family home sales in June 2025 by the 21 largest U.S. homebuilders included a “permanent” buydown—compared with 13% for all other new-home sales. Many large homebuilders do this because arbitrage in the bond market allows them to achieve a marginally larger reduction in a buyer’s monthly payment for each dollar spent on mortgage rate buydowns than for each dollar spent on outright price cuts.

2. KB Home says its Florida business is showing signs of stabilization—but the story is hyper-local

Speaking on their September 2025 earnings call, KB Home executives said they had cut home prices across Florida—last year’s weakest pocket of the housing market—and were beginning to see signs of stabilization in the Sunshine State as a result.

Do they still stand behind that “signs” of stabilization statement?

“That’s still largely accurate… But it really remains very market specific,” McGibney tells ResiClub. McGibney adds that some Florida communities have improved, allowing KB Home to lift prices a little this spring. Other Florida communities remain sluggish, requiring additional price adjustments even after earlier cuts.

“We look at every community as its own business,” McGibney explained. “It can vary significantly within the same metro—Tampa, Orlando, Jacksonville—you name it.”

As for magnitude, KB Home estimates most Florida home price adjustments since peak are modest. “Even -10% would be on the extreme side,” McGibney said, referring to price moves from peak levels. “Most of what we’re talking about is in a -1% to -10% range.”

3. The new-home supply pipeline is pulling back some in softer markets

“We’ve seen [housing] starts come down year-over-year in many [weaker] markets,” Mezger tells ResiClub. “Especially spec starts.”

KB Home says the pullback is helping limit further inventory pressure in markets like Florida, Phoenix, and Denver where “prices just ran up too much relative to incomes.”

“It's good to see that there's not a lot more inventory being injected into some of the softer markets, and I think that's going to help places like Florida stabilize,” Mezger says.

4. The new-vs-existing price gap is compressing—and that’s making new construction more attractive

According to the ResiClub New Home Premium Index, the median sales price of new single-family homes in October 2025 was -1.2% lower than the median sales price of existing single-family homes. This shift reflects how the affordability-strained housing market of the past three years has played out unevenly across segments. Many existing-home sellers have resisted downward price pressure, often at the expense of being able to transact. Homebuilders, by contrast, have been more willing to make affordability adjustments—most notably through price cuts, incentives, and a greater mix of smaller homes—to avoid a sharper pullback in new-home sales.

While there’s no question that the new-construction premium has fallen meaningfully from a few years ago, national median comparisons (i.e., ResiClub’s index) likely overstate the magnitude of the decline somewhat due to mix-shift effects. KB Home says its premium has compressed; however, it still exists.

“There's a lot of [existing] sellers that have stuck to pricing that's very high, and they haven't moved off the pricing so it doesn't trade. And historically, we've always, over time, been able to support a 10% premium to resale—and above 15% when there was no resale inventory. The premiums for the industry gapped well above that [during the Pandemic Housing Boom], and you have seen them compress. But in our case, we try to target our product when we open a community to be within that 10% to 15% range. And when we do that, we've [still] seen a buyer that will absolutely take new over used,” Mezger tells ResiClub.

5. KB Home says its constructions costs are down a little year-over-year

I asked KB Home about what impact tariffs and immigration policy are having on their material costs and labor availability.

McGibney responded saying that: “Our costs are actually down on direct vertical construction cost about -6% year-over-year. So are there tariff costs that are embedded in that, or perhaps they would be even lower without the tariffs? It’s hard to say. But overall, for our business, we're encouraged that we've got directs coming down year-over-year, that gives us an opportunity to provide a more affordable product to the buyer. On the immigration side, my crystal ball into 2026 is a little cloudy. Certainly, we're hopeful that the spring selling season is strong and there's a lot of volume and [as] building significantly ramps up, you know, maybe that becomes an issue [down the road]. I don't know, but we're not seeing any impact right now related to immigration policy in the way of labor shortages, other than what we might normally see in any given normal time period.”

“If we go back to 2022, certainly labor availability is much better [now]… We set a target of building homes in 120 days or less, and we just hit that in Q4,” McGibney tells ResiClub. “We wouldn’t be able to do that if labor was constrained.”

6. KB Home hopes lower mortgage rates provide some incremental relief heading into spring 2026

The average 30-year fixed mortgage rate today, as tracked by Mortgage News Daily, is 6.11%—down from 7.01% on the same day last year.

McGibney says that: “This [recent] move [down] in [mortgage] rates is still very recent… but lower rates improve affordability, and we’re encouraged by what that could mean heading into spring… We think that's going to help drive higher demand as we go throughout the next [few] months.”

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