While some housing observers regard 100,000 homes a year as the benchmark most likely to elevate big builders to true industrial acclaim, KB Home chairman and CEO Bruce Karatz sees a different pinnacle. “The game-changing event” for the housing industry, he said, when investors finally give builders their due, “would be when one of the builders becomes part of the Dow Jones Industrial Average.”
Karatz, discussing KB Home's rise to a national player before 150 senior home building and financial executives at The Presidential Seminar in Aspen, Colo., wouldn't speculate on which builder that might be or when. (The last time the DJIA changed companies on its index was March 17, 1997.) Karatz said he believes that it is only matter of time. Home builders already are “a bellwether of the economy,” he said, and “have better balance sheets than many classic industrial companies that are considered better run.”
Also speaking at the February conference on how to “change the rules” of the game were David Berson, chief economist of Fannie Mae; Barry Berkus, renowned residential architect; Paula Sonkin, J.D. Power's senior director; William Albers, principal of IHP Capital Partners; and Ivy Zelman, managing director and housing analyst for Credit Suisse First Boston, among others. The program was held by Organizational Development Associates, based in Atlanta.
Berson said leading current housing indicators remain strong, to the point where 2004 new home sales—currently forecasted to reach 1.078 million—could match 2003's record 1.087 million. Zelman painted a more sobering picture, expressing concern that rising home prices were creating affordability constraints that will make it harder for builders to sustain margin growth.