Bloomberg

KB Home (KBH - Get Report)  shares were lower Tuesday after the Los Angeles homebuilder was downgraded by Raymond James analyst Buck Horne.

Shares of KB fell 2.3% to $25.59 following the cut to underperform from market perform.

The report raised concerns about potentially over-optimistic expectations on Wall Street ahead of KB Home's second-quarter earnings report, scheduled for June 26 after the market closes.

Raymond James said KB Home's promotions and incentives designed to spur sales remained high even as the spring sales season kicked into high gear.

The decline in the company's stock price comes within a mixed bag of news for the homebuilding sector.

The Commerce Department reported a nearly 1% drop in housing starts in May, led by a decline in new single-family-home construction, even as it revised upward previously reported numbers for April and March.

While mortgage rates have fallen, providing a boost to homebuyers, builders are struggling to keep up as they face with a dearth of sites for development and with a shortage of workers.

Overall, U.S. homebuilder confidence edged down in June, falling two points to 64, the National Association of Home Builders index showed. The index remains firmly in positive territory, however, with a reading over 50 indicating a growing or improving market. 

"While demand for single-family homes remains sound, builders continue to report rising development and construction costs, with some additional concerns over trade issues," said NAHB Chairman Greg Ugalde, a homebuilder and developer from Torrington, Conn., in a statement.