By ADRIAN SAINZ, AP Real Estate Writer Adrian Sainz, Ap Real Estate Writer

–
Fri Mar 27, 4:53 pm ET

KB Home slashed its first quarter losses by 78 percent as first-time buyers flocked to the builder’s smaller and more affordable homes, but the company warned Friday the U.S. housing market has yet to hit bottom.

The Los Angeles-based builder reported a 26 percent increase in new home orders — the first year-over-year increase in more than three years. KB Home also expects to see sequential growth in orders throughout the year.

First-time buyers accounted for 70 percent of its sales in the first quarter, up from 53 percent in the first quarter of 2008, and they represent “the most attractive segment of the market as they do not have to sell a home before purchasing,” said Jeffrey Mezger, chief executive.

Half of all KB Home’s sales this year are expected to come from its new Open Series blueprint, a smaller and less expensive model the company unveiled to compete with discounted foreclosed homes. KB Home is offering the Open Series in 30 communities, including some in southern California, North Carolina, Tucson, Ariz., Orlando, Fla., and Houston.

“Homes must change with the times,” Mezger said. “It is not simply about reducing prices. It is about increasing value to the consumer.”

Combined with data this week that showed an increase in sales of new homes and previously occupied homes from January to February, KB Home’s earnings were a ray of hope for a housing market beset by sluggish sales and high inventories.

“We are mindful that, even in this difficult economic environment, the fundamental desire for home ownership has not diminished,” Mezger said. “If buyers find the right home in the right location at price they can afford, they will make the purchase decision.”

New home orders totaled 1,827, and the cancellation rate plunged to 28 percent from 53 percent in the year-ago quarter.

Nevertheless, Mezger said he remained concerned with the economy and job losses, and stressed he was not calling a bottom to the worst housing market since the Great Depression.

“We think it will be difficult for a while,” he cautioned.

But tax credits and historically low mortgage rates are helping.

Mezger said the $8,000 tax credit, while raising the interest of buyers, has yet to have a “material impact” on traffic or sales on its own. But the incentive is contributing to increased sales activity in California, which has a new home buyer tax credit of $10,000, he said.

The nation’s fifth-largest builder reported a net loss of $58.1 million, or 75 cents a share, compared with a net loss of $268.2 million, or $3.47 a share, in the same period the year before.

Total quarterly revenue was $307.4 million, down 61 percent, because home sales were still half last year’s levels and the average price dropped 15 percent to $210,700.

Included in the net loss were charges for inventory and joint venture impairments, and abandoned land option contracts, totaling $32.3 million. That’s a decrease of 86 percent from the $223.9 million of similar charges in the first quarter of 2008.

Analysts polled by Thomson Reuters predicted a loss of 81 cents per share on revenue of $348 million.

Reacting to the news, investors bid up KB Home’s shares by 89 cents, or 6.3 percent, to close at $15.05 Friday, while broader markets were lower.

At the same time, Obama said the executives needed to understand and acknowledge the public’s anger over the financial crisis and the massive paydays that have continued long after the industry went on the public dole.

“Excess is out of fashion,” Obama said, according to participants in the gathering.

The president held himself up as an example, saying that he had not yet renovated the Oval Office and was still using George W. Bush’s furniture, even noting the stains on the carpet. He urged the banks to show comparable “constraint and responsibility,” adding that the nation had undergone a cultural shift.

The bankers, a roll call of industry titans including the heads of Bank of America, Citigroup and J.P. Morgan Chase, arrived with their own message: The government’s steady support is a critical prerequisite for increased lending. The administration, they said, needs to provide more steadiness and support.

Several of the executives, each of whom had a chance to address the president, also offered specific accounts of their efforts to increase lending.

The meeting comes as the administration tries to craft a working relationship with an industry that is key to the nation’s economic stability, while at the same time channeling a wave of public anger.

Just more than a week has passed since the outcry over bonuses to employees of American International Group led the president to call the payments an “outrage,” and the House to pass a bill that would essentially seize through taxation the bulk of any bonus paid by a financial firm taking federal aid.

Obama has since tempered his rhetoric, and the Senate has slowed the legislation. Both moves are a response to warnings that hitting the banks would only hurt the economy.

Yesterday, Obama made this point explicitly, casting himself as a bulwark between an angry Congress and the banks who was seeking to push the industry toward necessary changes while shielding it from the consequences of populist rage.

“The president emphasized that Wall Street needs Main Street and that Main Street needs Wall Street,” said White House press secretary Robert Gibbs.