Luxury home builder forecasts slowdown
USA Today
In the latest sign that the once red-hot real estate market is cooling, Toll Bros., the nation's biggest builder of luxury homes, said yesterday it would sell fewer houses than expected next year to its upscale clientele.
Given the company's high profile, the admission from Toll Bros. CEO Robert Toll that demand was "softening" pretty much "across the board," and that home prices were likely to "moderate," sent shock waves through an industry already on edge amid growing concerns that the massive multiyear price run-up is nearing an end.
Even though Toll said its year-end fiscal 2005 contract backlog grew 36 percent to $6 billion and fiscal fourth-quarter revenue topped $2 billion — its best quarter in history — what the company said about its future business rattled analysts. Toll said it expects to deliver 9,500 to 10,200 homes in fiscal 2006, down from its previous guidance of 10,200 to 10,600.
Toll blamed the shortfall partly on the company's inability to get a large enough supply of new homes to market because of an increasingly lengthy regulatory process. He also said the wealthy folks who buy homes averaging $700,000 last quarter from his company were suffering from a loss of confidence in the economy following Hurricane Katrina.
Still, Goldman Sachs economist Jan Hatzius was quick to point out that "supply" disruptions aside, the real story was weakening demand. He said Toll, which is known for building so-called McMansions, was just reaffirming what other data, such as a swelling inventory of homes and a dip in mortgage applications with 30-year fixed mortgages above 6 percent, were already telling him: The real estate market's best days are over.
Wall Street reacted harshly to the sales warning. Shares of Toll fell 14 percent to $33.91, and a broad index of more than 20 housing stocks tracked by the Philadelphia Stock Exchange cratered 5.4 percent.
While Toll Bros. shareholders might feel as if a roof collapsed on them, some executives were fortunate to sell in July ahead of the slide culminating with yesterday's news:
