UPDATE 2-KB sees Open Series as half of 2H09 deliveries
KB is targeting the first-time buyer now because that buyer does not need to jump the hurdle of first selling a home before buying a new one, Mezger said. KB can offer Open Series homes cheaply because the designs are more efficient and take less time to build, Mezger said, offering the example of a 1,700 square foot home that cost 15 percent, or about $23,000, less to build than a comparable older product. But because the company only lowered the price about 10 percent, its margins increased, providing an enhanced profit and a cushion against further marketwide price declines, Mezger said.

UPDATE 2-KB sees Open Series as half of 2H09 deliveries

* Sees Open Series prices "straddling the median" 
* Says marketing budget did not change for Open Series (Adds margin, customization details, background, stock action)

NEW YORK, Feb 6 (Reuters) - KB Home (KBH.N), the No. 5 U.S. homebuilder, expects more than 50 percent of its deliveries in the 2009 second half will be from its new Open Series product line, Chief Executive Jeff Mezger said on Friday.

Open Series offers a buyer the option of designing a home, including the number of bedrooms, around a basic core that contains such major features as a kitchen, stairs and main bedroom.

That means the size and price of the home can vary widely according to the customer's wishes, although in general, the prices will straddle each market's median in order to compete with foreclosures and to attract the first-time buyer, Mezger said.

As the U.S. housing industry grapples with a protracted and deepening downturn, analysts and investors are watching big builders to ascertain which ones are ahead on lowering the prices of their homes through product redesign.

KB has been the most agressive of the big builders in trying to lower costs, although all builders have been trying to alter their products to compete with foreclosures, UBS analyst David Goldberg said. "Theirs is a more exhausive effort in redesigning the house."

The rampant risky lending that fueled the housing boom preceeding the bust has resulted in a surge of foreclosures hitting the market as unqualified buyers default on their mortgages, bulking up supply and depressing prices.

To stay in business, builders of new homes must compete with foreclosures and short sales of homes, which come on the market after banks repossess the properties and slash prices.

For example, in Tucson, Arizona, the market's median price is in the mid-$100,000s, and KB's Open Series homes will carry price tags between $120,000 and $180,000.

A smaller iteration of an Open Series home measures 2,100 square feet, but that home can also expand to encompass 3,600 feet through the addition of rooms at the buyer's discretion.

KB is targeting the first-time buyer now because that buyer does not need to jump the hurdle of first selling a home before buying a new one, Mezger said.

KB can offer Open Series homes cheaply because the designs are more efficient and take less time to build, Mezger said, offering the example of a 1,700 square foot home that cost 15 percent, or about $23,000, less to build than a comparable older product.

But because the company only lowered the price about 10 percent, its margins increased, providing an enhanced profit and a cushion against further marketwide price declines, Mezger said.

The introduction of the new product line is a major strategic move for the company, but KB does not see the need to bulk up its marketing budget in order to launch it, Mezger told Reuters in an interview.

KB's shares were up about 13.7 percent at $14.01 during afternoon trading on the New York Stock Exchange. (Reporting by Helen Chernikoff; editing by John Wallace, Bernard Orr) (( This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ; +1 646 223 6127; Reuters Messaging: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ))

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