May 4 (Bloomberg) -- KB Home Chief Executive Officer Jeffrey Mezger said home prices in Southern California have begun to stabilize, allowing his company’s newly built houses to compete with existing homes, including foreclosures.

“If you go to Southern Cal, as an example, we’re seeing a floor on pricing,” Mezger said today in a conference call with analysts organized by J.P. Morgan Securities Inc. “We don’t see prices going down right now, which is a good thing, because then you can set a baseline.”

The median price paid for a home in six Southern California counties was $250,000 in March, the same amount as in January and February, San Diego-based research company MDA DataQuick said last month. KB Home, based in Los Angeles, in March reported a narrower first-quarter loss as orders increased for the first time in three years.

Mezger said KB Home is able to compete in regions such as Southern California with its Open Series homes, which are smaller, less expensive, and have higher profit margins than the company’s older designs. In Southern California’s Inland Empire, for example, KB Home charges $170,000 to $180,000 for Open Series properties, down from about $220,000 to $240,000 for KB Home’s previous models, Mezger said.

“We’ve moved the needle a bunch from where it was before,” he said today.

The median home price in Riverside County, part of the Inland Empire, was $187,000 in March, according to MDA DataQuick.

Mergers Unlikely

Also during today’s call, Mezger said he doesn’t expect Pulte Home Inc.’s $1.3 billion purchase of Centex Corp., announced in April, to lead to more mergers and acquisitions among U.S. homebuilders. Buying land is less expensive than purchasing rival companies, he said.

“It doesn’t make sense to me to pay a premium for another builder if we can go into those markets and buy lots and grow organically, which is where our thinking is today,” Mezger said. “In the short run I don’t think you’ll see a wave of M&A activity.”

KB Home rose $2.02, or 12 percent, to $19.49 as of 4 p.m. in New York Stock Exchange composite trading. Its shares have declined 22 percent in the past year.

To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net.

Last Updated: May 4, 2009 16:16 EDT