KB Home Q1 net orders fall on higher cancellations (Reuters) - KB Home (KBH.N) posted a surprise fall in net orders as cancellations rose in the first quarter, a sharp contrast to the recent upbeat forecasts by rivals, sending its shares down 14 percent. Homebuilders such as D. R. Horton Inc (DHI.N), Pulte Group Inc (PHM.N) and Lennar Corp (LEN.N) have forecast an improving housing market. Also, data released on Tuesday showed permits to build homes rose to a near 3-1/2 year high in February. However, new U.S. single-family home sales fell in February, but reported a jump in prices to their highest level in eight months. New home sales account for about 7 percent of the overall housing market and face stiff competition from used home segment despite low levels of stock. KB Home -- which focuses on entry level, move-up buyers and active adult home buyers -- said the pace of the recovery was uneven, with certain markets showing greater strength. The fifth-largest U.S. homebuilder, which had posted strong order growth for the last two quarters, said orders fell 8 percent to 1,197 homes in the quarter. Orders declined in three of its four regions. Orders are a key indicator for builders who do not book revenue until they close on a house. The housing market is healing from a collapse that triggered the 2007-09 recession, but a glut of unsold properties and high unemployment have hindered the recovery. Net orders at the higher-priced West Coast market fell 28 percent to 289 homes. Average selling price in this market was up by more than 6 percent. The Southwest market, where prices rose by about 26 percent, saw net orders decline 30 percent. KB Home blamed a rise in cancellation rate -- up 36 percent from 29 percent last year -- for the fall in net orders. The homebuilder said housing gross margin for the quarter fell to 9.7 percent from 12.6 percent last year. UBS analyst David Goldberg said although recent anecdotal evidence suggested underperformance in the entry-level segment, the magnitude of the weakness experienced by KB Home is beyond what this would have suggested. He added that the results were likely reflective of a company specific issue as opposed to a broader trend. First-quarter net loss narrowed to 59 cents per share, from $1.49 per share a year ago. Revenue rose 29 percent to $254.6 million. Analysts were expecting a loss of 24 cents per share on revenue of $337.7 million, according to Thomson Reuters I/B/E/S. Shares of the company were down 8 percent at $10.36 on Friday morning on the New York Stock Exchange, making them the second-biggest percentage loser on the exchange. The shares have gained more than two-third in value in the past 3 months on hopes of a recovering housing market. KB Home's disappointing performance also pushed shares of its peers down. Shares of rival Toll Brothers (TOL.N) were down 2 percent, while shares of biggest homebuilder D.R. Horton were down 1 percent. The S&P homebuilding sub-industry index .GSPHOME, which has doubled in the last six months, was trading down 2 percent, while the broader market .SPX was up slightly.