Bruce Karatz, Chairman and CEO of KB Home

This is a partial transcript from Your World with Neil Cavuto, June 20, 2003, that was edited for clarity. Click here for complete access to all of Neil Cavuto's CEO interviews.

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TERRY KEENAN, GUEST HOST: Build it and they will come. That’s why KB Home, one of the largest U.S. home builders, said its fiscal second-quarter profits rose 27 percent. But can the boom continue?

With us now, the chairman and CEO of KB Home, Bruce Karatz.

And, Mr. Karatz, welcome. Nice to have you with us.

BRUCE KARATZ, CHAIRMAN & CEO, KB HOME (KBH): Good afternoon. Good afternoon, Terry.

KEENAN: You know, mortgage rates and interest rates in particular started going up this week in the last couple of days. A lot of home builders hit hard on Friday. Your stock down about 8 percent. Is the market starting to say that interest rates are going to get in the way of your business?

KARATZ: Well, I’m not sure what the market said today by that kind of movement. There doesn’t seem to be anything in the fundamentals that we see that would justify that. Interest rates are important to home building, but there’s not as close a link as some people would like to think.

KEENAN: What happens to your business if mortgage rates start to go up rather precipitously here?

KARATZ: Well, there’s several things. Normally, one would anticipate if rates went up that that would mean that the economy is getting stronger, job creation is stronger, and consumer confidence is up, and that’s very good for home building.

It obviously lowers affordability, but, again, the mortgage markets have a lot of adjustable rate mortgage product that would fit buyers that would not qualify for a fixed rate to allow them to get into a home.

So, you know, modest increases in rates, I don’t think, would affect home-buying demand and may arguably help us.

KEENAN: You’re obviously a keen observer of what goes on in the mortgage rate market, although you say it doesn’t totally affect your business. What suggestion would you give to people who are wondering whether we’ve seen kind of the bottom in rates. Should you refinance right now?

KARATZ: Well, refinancing is different from buying.

I tell people who are renting that -- as I told my own children -- if you find something you like and you can afford it, you buy because, over the long pull, you’re better off being an owner with an interest-rate deduction than you are being a renter just paying higher rent payments.

As far as refinancing, you know, tough call. I think people have rode it down as well as they can, and each person will have to figure out whether it makes sense to them to refinance.

KEENAN: I mean, on the rental side of the equation, rents are coming down, and some real-estate owners that I’ve talked to here in the city say they see that as somewhat of an ominous sign for the real-estate holdings that they own. Is that something that you look at?

KARATZ: We follow it. Obviously, the rental market is very different from the home building.

I think rents have come down simply because we’ve pulled a lot of renters out of apartments, and owners are trying to fill them up by lowering the rents.

As fast as they come down, they can go up just as fast. So people looking, I think, are aware that, if they can own, it’s still a better place to be than renting.

KEENAN: OK. Thanks for joining us. Nice have you with us

KARATZ: Thanks, Terry.

KEENAN: Bruce Karatz.

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