Karatz went on
to dismiss talk of a housing bubble. How long could the "near perfect" market continue, his host asked? "Well, I think it can last a lot longer than the skeptics believe," he replied. Karatz predicted strong demand would continue as new migrants flooded into the booming areas in the South and West. He noted that interest rates remained favorable.
"I think the combination of those two factors make for a very good picture for homebuilders for the foreseeable future," he declared.
For good measure, he also dismissed suggestions that his company, and others, were building too many homes. "We're talking about a relatively small percentage increase over what happened 15 years ago, when our population was much smaller."
Karatz also went to a
real estate conference in New York, and calmed the fears of anyone worried about all the subprime lending and adjustable-rate mortgages behind the market. Most people taking out ARMs are "capable buyers," he told the conference. And of all those using ARMs simply to increase their leverage, he added: "I'm not quick to say it's imprudent."
KB Home shares responded to all the great news, soaring above $80 in July. What's interesting, though, is how Karatz and Mezger, his chief operating officer at the time, were acting. While Wall Street bulls were bidding up their stock, they were taking profits. On July 7 and July 8, 2005, Mezger exercised 369,292 share options and then sold the shares at an average price of around $77. And a week later, Karatz did the same with 950,000 options, getting an average price of just over $80.