Luxury Homebuilder Toll Brothers Shows Some Surprising Strength

One of the most common bits of conventional wisdom surrounding the housing crisis has been that the upper end of the market was just beginning to tank and would suffer for some time. The logic behind the argument is that with the destruction of equity that’s occurred there is and would continue to be a dearth of move-up buyers.

I bought into the argument and I’m not sure that I’ll cast it aside quite yet, but this post from HousingWire makes me pause:

Horsham, Penn.-based Toll Brothers  said it signed more contracts during the third quarter of its fiscal year 2009 than it did in the year-ago quarter, even though it has fewer selling communities.

The lift in signed contracts along with a drop in cancellations has the luxury homebuilder cautiously optimistic that upscale housing may be rebounding, despite the company’s $472.3m quarterly loss.

Toll Brothers has 22% fewer selling communities in Q309 than in Q308, but same-store net-signed contracts were up 32% year-over-year, the first yearly increase since the builder’s fiscal Q405.

The builder reported 78 cancellations during Q309, a rate of 8.5%. That’s better than 161 (21.7% cancellation rate) in Q209 and 195 (19.4% cancellation rate) in the year-ago period. It’s the builder’s lowest cancellation rate since fiscal Q206.

“We believe declining cancellations and more solid demand indicate that the housing market is stabilizing. We are reducing incentives and raising prices in selected communities,” chairman and CEO Robert Toll said in a statement. “We believe that customers are recognizing that now is the time to get into the market to take advantage of near-record affordability and what is still, for now, a buyer’s market.”

Interesting trends there. I suppose there are quite a lot of people who have been relatively untouched by the recession who look at now as a great time to pick up a deal and undoubtedly there are owners who have no mortgage that might well be willing to take what the market will give them in order to move up. I can’t read much more into it than that and, if I’m right, then that might only signal some demand that’s a mile wide and an inch deep.

Still, it’s an interesting development and suggests that the homebuilders in this sector of the market might have more going for them than many suspect. It might be worth a closer look at some of their stocks.

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