Some more trouble for homebuilders.

More pain for home builders
KB Home, Dominion Homes issue negative views on housing
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By John Spence, MarketWatch
Last Update: 9:17 AM ET Jul 10, 2006

BOSTON (MarketWatch) -- A pair of home builders said the U.S. housing market continues to soften, reflected by weaker orders and higher cancellations, and one of them warned that the downturn could continue into next year.
Despite a healthy backlog of homes awaiting construction, KB Home (KBH :45.12, -0.64, -1.4% ) said in a Securities and Exchange Commission filing Friday that its outlook is cautious "as conditions in many of the markets we serve across the U.S. have become more challenging in recent months."
The Los Angeles company added that several of its markets "have been affected by a buildup of new and resale home inventories, higher interest rates and higher cancellation rates, particularly markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years."
For the quarter ended May 31, KB Home, the nation's No. 5 builder by 2005 deliveries, said net orders fell 19% from the year-ago period to 9,908 homes.
Although the company is positive on the long-term outlook for housing on strong demographics and job growth, it cautioned it expects "the current negative trends in the U.S. housing market to continue for the remainder of 2006 and, possibly, into 2007."
Another builder, Dominion Homes Inc. (DHOM :8.28, -0.45, -5.2% ) , also on Friday reported deteriorating order trends.
The Dublin, Ohio, builder said that for the second quarter ended June 30, it sold 356 homes with a sales value of $66.2 million, versus 655 homes and $123.1 million in the year-earlier period.
Deliveries and backlog also fell from the year-earlier quarter, reflecting "the difficult home sales conditions in the company's markets," Dominion said. The company focuses on first-time buyers in the Midwest.
Raymond James & Associates analyst Rick Murray on Monday lowered his 2006 and 2007 profit outlooks for the company after the disappointing report. He cut his 2006 forecast to a loss of $1.50 a share, from a loss of 85 cents, and the 2007 estimate went to a loss of $1.35 a share from a loss of 35 cents.
"Dominion continues to face challenging conditions in the Columbus [Ohio] market, to which there appears to be no relief in sight for the foreseeable future," said Murray, who reiterated his underperform rating on the stock.
"The earnings outlook remains unpromising at this juncture, as we do not anticipate an increase in demand for new construction in the near term," he added.
Home-building stocks have been punished as housing cools -- the Dow Jones U.S. Home Construction Index (DJ_3728 :0.00, 0.00, 0.0% ) is off about 30% year to date.
Much of the concern has been centered on higher interest rates. For the week ended July 6, the 30-year fixed-rate mortgage averaged 6.79%, approaching its most recent peak of 6.81% set in May 2002, according to Freddie Mac (FRE :58.14, +0.54, +0.9% ) .
John Spence is a reporter for MarketWatch in Boston.