(Bloomberg) -- KB Home fell after its fourth quarter results showed a drop in new home orders, raising further concern over housing demand as builders’ stocks head into earnings season. 

KB Home closed 2.9% lower after reporting less than 700 new orders in the quarter. That marks an 80% drop from the year before, falling far below consensus analyst expectations for about 2,000 orders, according to Bloomberg data. 

The “challenged” quarter and worse-than-expected forecast is a negative for KB Home and the broader homebuilders sector, RBC Capital Markets analyst Mike Dahl wrote in a note. “At some point, we do believe that if trends remain weak on demand/price/margins, bad news will actually be treated as bad news following the strong recent rally.” 

Investors will be watching for a litany of earnings reports from builders in the coming weeks for more insight on the state of demand, including D.R. Horton Inc. on Jan. 24 and PulteGroup Inc. the following week. KB Home aimed to protect its margins rather than take steps to drive more sales, as builders grapple with flagging demand for homes amid elevated mortgage rates and a potential looming recession. 

The S&P Composite 1500 Homebuilding index fluctuated Thursday as investors also parsed cooling Consumer Price Index data. The sector was hit hard in the first half of 2022 as mortgage rates soared and eroded demand, then recovered in the second half of the year as borrowing costs eased, to finish lower by 25%.

(Updates to market close)

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