KB earnings may signal that worst days are ending.

How much further will the U.S. housing market fail before it hits bottom? The answer depends on whom you ask.

KB Home, one of the nation's largest homebuilders, reported fourth quarter earnings on Tuesday that beat Wall Street's estimates--an indication that the worst of the real estate slump may appear in the rear-view mirror, some believe.

The Los Angeles homebuilder reported a first-in-a-decade loss, which was $49.6 million, or a loss of 64 cents per share. That's a sharp drop from a profit of $304 million or $3.44 a share for the same period a year earlier. However, it significantly beat analysts' forecast of a $1.14 loss per share. Shares gained more than 5 percent after the announcement and closed at $54.75 on Feb. 15.

In fact, KB Home's previously beaten-down stock is up more than 31 percent in a little more than three months, a sign many investors apparently feel the worst may be over.

"Management indicated that cancellation rates (for new homes) have returned to historically normal levels," Stephen Kim, an analyst with Citigroup Investment Research, said in a report. "The company also indicated that orders are positive year-over-year on both the East and West coast. We find this data provides additional evidence ... that the housing market is stabilizing." Kim rates the stock a "buy."

Optimists pointed to KB's 13 percent gain in revenues for the quarter, helped mainly by an increase in the average selling price of homes.

On the other hand, orders for new homes plunged 50 percent for the quarter, and given that the company has its strongest footing in California, Florida and Arizona--three markets most exposed to the residential slump--there is plenty of room for concern.

"(This) will continue to adversely impact the company's fundamentals to a greater degree than some of its more widely diversified competitors," said Gregory E. Gieber, an analyst with A.G. Edwards & Sons Inc., in a report. He rates the stock a "hold."

KB's new Chief Executive Jeffrey Mezger echoed that concern when he said that he expects demand to decrease at least "through the first half of 2007 and potentially longer."

Not alone

Nearly every mortgage lender has felt the pain as well. Countrywide Financial Corp. reported tepid sales numbers for the first month of 2007 a few days prior to KB's earnings.

The Calabasas-based mortgage lender, the nation's largest, reported that new mortgages rose but the majority were refinances.

Countrywide said that borrowers holding adjustable-rate loans took out new loans with fixed rates at the beginning of the year to avoid increases in payments.

Countrywide also trimmed its subprime lending, which will reduce the pool of potential buyers by tightening credit standards for the higher-risk loans normally used by first-time buyers or those with lower credit scores.

Also, Santa Monica-based lender Fremont General Corp. trimmed its subprime lending, saying it would no longer offer risky "piggyback" loans--which are loans made to borrowers in addition to a mortgage and are traditionally used as down payments. These loans accounted for 8 percent of the company's lending.

Fremont said it decided to cut back due to a rash of defaults. The company will report its earnings Feb. 28.