KB Homes earnings and what it signals for the self-storage industry

THE SELF STORAGE REPORT — EPISODE TRANSCRIPT Episode: KB Homes earnings and what it signals for the self-storage industry Host: Chris Berg — Abernathey Development Recorded: March 27, 2026 Video: https://www.youtube.com/watch?v=S4lAYNlOHy8 Key topics: KB Homes Q1 2026 earnings; housing revenues down 23%; deliveries down 14%; average selling price down 10%, from $500,000 to $452,000; home building operating income margin from almost 11% down to 3%; gross profit margin down almost 6% in 2 years; 42,000 US home purchases canceled in February per Charlie Bilello; mortgage rates above 7% and mortgage demand down more than 10%; KB Home 5-year stock chart topping in September 2024; the 18.6-year real estate cycle; Lennar and DHI comparisons; Darius Dale of 42 Macro on a liquidity crisis; Strait of Hormuz, oil prices and GCC treasury buying; storagedemandscore.com and Tract IQ demand scoring Note: Speaker attribution reconstructed from raw captions. Light cleanup of transcription errors only; wording preserved. Timestamps and YouTube chapter markers removed. Turns marked [attribution inferred] could not be attributed with certainty. ————————————————————————————— Chris Berg: KB Home just released their earnings and what does that signal for self storage? Bottom line, it's not great. It's just not. It's not great. We're going to dive into it today. Welcome to the Self Storage Report. I'm Chris Berg. Thanks so much for joining us. Chris Berg: Um, now why look at a home builder's earnings? What does that really signal? What does that tell you for self storage? When you start to dive into the home builder's earnings, whether it's KB Homes or Lennar or others, you start to see where they believe the growth is going to be happening for different markets. You can see obviously we all know that home sales and people moving is really a big demand driver here in the self storage industry. So gives you an idea of what kind of movement is happening right now in the market. And again, when I show you the data, it's not a positive sign for self storage demand and it's been that way now, really for quite some time in the industry. So just something you want to be aware of and be thinking about as you're either developing or doing acquisitions. Chris Berg: Couple things to note from the call, the earnings call for KB Homes. Um, they bottom line said because of the situation in the Middle East, you've got a very, very tepid consumer right now. They're concerned about their ability to have a job, to hold a job. And you put that on top of what's going on with AI, you can appreciate and understand that. Um, also, they're really concerned about, you know, raising fuel prices, so their disposable income. I'll show you some data points about how it's impacting consumers right now in a moment. And then, um, of course, they're worried about interest rates. You know, we've talked before and I'm going to give you a really good clip coming up here about why you can potentially anticipate actually higher interest rates in the future rather than many people thought when worse comes in, they're going to get lower. That just may not be the case due to what's happening over in the Middle East. Chris Berg: All right, I think here's a really fascinating graphic to check out. Um, this is Charlie Bilello. He does a great job with charts and whatnot, but you can see here 42,000 US home purchases were canceled in February. Um, he says this is the highest cancellation percentage for any February on record. So, you start to think about, you know, there's millions of people less coming in this country, which is obviously a lot of movement. You see this in some of the markets where rental rates for multi-family is going down dramatically. Then you get 42,000 home purchases. Like that is the driver for self-storage just canceled, gone, the highest ever. So again, you can see self-storage demand cratering from that perspective. Chris Berg: All right, let's dive into the actual KB Homes data here and you can see what they're showing from Q1 2026 and Q1 2025. Housing revenues down 23%. Deliveries down 14%. The one maybe good thing to see, even from a self-storage perspective, is that the average selling price down 10%. So in just a year from Q1 2025, $500,000 down to $452,000. Everyone's been talking about the affordability crisis. So from just a pure K-shaped economy, consumer concern about inflation, um, this is maybe the one positive note from a self-storage demand driver that came out of this KB Homes conversation. Chris Berg: Just to put it in a few different ways to look at also from '24 to '26, um, housing revenues, you can see here down dramatically. Average selling price, this again this might be the one good thing to take away from the KB Homes conversation from their earnings report, um, from the consumers and this hopefully is going to get people moving again. Again, I think we're going to bump up against inflation with oil prices, we're going to bump up against potentially higher mortgage rates. So it may actually drive this number down a lot more over the coming quarters and potentially years with who knows what's going to happen in the Middle East and oil. Chris Berg: Um, this one I think is really important in our home building operating income margin, you know, because of prices being up and people concerned about jobs and not as much movement, you know, they're trying to buy down interest rates. You're going to see here in a moment that their expenses are actually going up. So, the operating income margin, I mean, holy cow, right? And '24 from almost 11% down to 3. How many of us in self-storage can relate? You got property taxes going up, insurance going up. So, we get it and can appreciate their pain from that perspective. Gross profit margin, you can see here again, down, you know, almost 6% in just 2 years. Chris Berg: So, I want to share with you something that's really fascinating. We've talked about this before on the show, but this is a 5-year vision, if you will, of the KB Home stock chart. Um, Thaddeus and I sat back as we were talking about what happened here in September of 2024. This is really important to note, especially in the context of the 18.6-year real estate cycle. Chris Berg: What's fascinating about home builders, and I can go on and you can look at Lennar and DHI, and go on down this list here, if you wanted to, but when these home builders top, and Thaddeus and I talked about this, this is probably, we didn't know for sure, but this is probably going to be the top here, meaning the all-time high for these home builders. Couple interesting things to note. One, this is right when Jerome Powell actually started to raise rates. So, thus, you see this dramatic drop in the stock. But secondly, what this is signaling, at least in the past cycle, that 2006, 2007, 2008 cycle, is that home builder stocks typically topped out, had an all-time high 2 years before the market just went kaput. Now, is that going to be the perfect pattern again? I don't know. This isn't financial advice, but if you're a person that believes that history rhymes, this is something I think you definitely want to keep your eye on and watch. How does this thing move, especially over the next 3 quarters? Right now, you know, not good. You're coming back down here to potentially a new low over the past, you know, March of '25, so year or so. So, just something you want to keep your eye on from that perspective. Chris Berg: I think this is another important data point that you want to see here. Mortgage demand drops more than 10% as rates hit the highest level since October. We talked about this briefly on Tuesday. Um, mortgage rates for the first time, this is October, was August, above 7%. Bottom line is the fact that mortgage rates are going up. We're going to continue to see less and less demand in the self-storage industry. As we said before, many people are locked into those 3%, 4% mortgages. They're so like, why would I want to move? What's the point of moving? Which again is going to have an impact on self-storage demand. Chris Berg: One other thing I want to note here, Darius Dale does a great job from a macroeconomics perspective. Um, I want to share this with you if I can get this to work. But, one of the things we talked about on Tuesday is that if this situation in the Middle East continues as is, you're going to see the Gulf Coast countries have less and less liquidity to buy treasuries, to buy equities, which has obviously been, we've seen the S&P 500 do what it's going to do, but if there's also less money there to buy treasuries, that's potentially why you could see rates actually go higher, especially that two-year which signals that the Fed fund rates is going to be going up as well. But, he sort of breaks down that there's a liquidity crisis going on. If you've had these barrels of oil not hitting the market cuz Iran potentially is going to continue to keep the Strait of Hormuz closed, you're going to see huge inflation spikes cuz there's just obviously there's not as much supply, but also it creates this liquidity crisis where the GCC countries are not buying treasuries and equities. So, here's Darius Dale from 42 Macro breaking this down. Chris Berg: So, I don't know if you can see what's going on over in some of the Asian countries, but what I've seen at least on social media is you've got long, uh I didn't even get a chance to move over to play that Darius clip for you. I apologize. Um, so, I don't want to replay that for you, but you can see it on, it's on Twitter here. It's around the 7-minute mark if you want to go listen to that again or see it, but the important thing for us is that look, if these guys don't have the liquidity to put out into the markets, uh that's a problem. And that's why we haven't seen the markets do much as of yet, but if this continues, you're going to see the price of oil continue to rise. It's obviously going to get into people's disposable income, and that's why we've talked here before, you're going to continue to see I believe demand for self-storage um go lower and lower to the point where even yesterday had a comment on a LinkedIn post I had where you could potentially see people start saying, "Hey, do I pay for my storage site or do I put food on the table, right? Do I pay for storage or do I put gas in my car?" We're not there yet, but with inflation and where the price of oil could be going or what's going to be happening at the pump, um it's a potential possibility you just want to be aware of as you're continuing to, you know, what are you doing from an occupancy standpoint, ECRI standpoint, acquisitions, development. Chris Berg: And again, this is a big reason why, because no one I believe does a really good job talking about self-storage demand, why we built the storagedemandscore.com. Again, you can check it out at storagedemandscore.com, but it's really a great tool where you can put in an address of a site you're looking at. Maybe it's an acquisition or development. Put in that rentable square footage that you're projecting to put in that marketplace, hit this button. Tract IQ is going to then spit out the information you need here. You come down, you hit this button for your demand score, and it'll walk you through and tell you, "Hey, are you scoring at a 1 or less, which is very, very weak demand? Are you between 1 and 2, which is moderate? 2 to 3 is healthy demand. If you've got a 3 plus demand score, you've got very, very healthy demand in that market, which typically is going to translate, obviously, to very good rental rate." Chris Berg: So, we'd love to know your thoughts. What else you're seeing in your particular markets? What's your take on what's going to be happening with storage demand based on what we just talked about here with KB Homes and, you know, the dramatic, I guess, drop, if you will, in what they're doing from just moving homes. Again, the only, I think, really good thing coming out of the KB Homes earnings conversation was the fact that there's been a 10% drop in home prices from roughly 500 grand down to 450. I think it's going to continue to erode, which is going to, ideally, create more movement, which is good for self-storage demand. So, please share this with your colleagues. Again, thanks so much for joining us on the Self Storage Report. I'm Chris Berg. We'll see you back here again soon. — END OF TRANSCRIPT —