Housing Top Was Sweet for KB Home Pair

Let the record show that neither KB Home's current head honcho, Jeff Mezger, nor his predecessor, Bruce Karatz, did anything wrong when they dumped more than $100 million of stock in July 2005. And they certainly weren't the only industry executives who got out while the getting was good.

The fact that the pair sold huge chunks of company stock almost exactly at the peak, and shortly before the housing market collapsed, was doubtless just a coincidence. And the people who bought their shares and have already lost nearly $63 million, or 60 cents on every dollar invested, are just the victims of bad luck.

A KB Home spokeswoman says Mezger still has substantial holdings in the company. She could not comment on Karatz, because he has since retired.

The summer of 2005, of course, turned out to be the peak of a monster real estate bubble. It was one inflated by real estate speculation and eye-watering levels of personal debt. That bubble had sent prices to unsustainable levels. KB Home, one of the country's biggest homebuilders, was right in the sweet spot.

Yet if you look back at the transcript of the company's June 2005 conference call, one thing sticks out: complacency. That's true of the management -- and of Wall Street analysts.

The scribblers are supposedly paid to be critics, not cheerleaders. But none of them pressed the company hard on the possibility of a housing bubble. No one questioned whether the strong metrics, like earnings and inventory, were backward-looking. Most were too busy congratulating the management to ask any awkward questions.