Bob Toll spent a great deal of time Tuesday making the case that Congress needs to act to stabilize the demand side of the housing market.
In both the company's release of preliminary results for its fiscal fourth quarter ended Oct.31 and in a subsequent conference call with analysts, Toll reiterated his view that the current financial crisis will not be contained until a floor is established under home prices.
Repeating words contained in the company's release during the call, Toll said, "Congress has allocated hundreds of billions of dollars to reset mortgages, help people who are in foreclosure, and protect those who have been the victims of rapacious lending practices. We believe that, if home prices are not stabilized, these efforts will be for naught, more mortgages will go under, and the taxpayers' money will have been wasted."
This statement led to several questions during the call, one from Zelman & Associates' Ivy Zelman, who asked Toll in his role as an industry spokesman whether builders active in the "Fix Housing First" initiative had as yet found a champion in the Congress.
"The builders have put on their track shoes and run to Washington and banged on the doors of the usual suspects," Toll said. "I can't say that we've got a backer. We have a lot of interested parties."
Toll's argument, and that of the Fix Housing First coalition, is that until there is a floor under house prices, no real value can be established for the $2.5 trillion in unsaleable mortgage-backed securities that is now dragging down the global financial system. Moreover, so long as prices keep falling, foreclosures and short sales, which flood the market with ever cheaper product, will continue to rise as more and more homeowners find themselves underwater on their mortgages and equity loans.
In response to questions regarding whether Toll would be better off letting the market take its course, which would likely allow it to buy distressed land more cheaply, Toll said that although a prolonged downturn would make land less costly, "we're not suggesting that we want socialized housing.We're talking about saving the economy."
Another questioner asked whether any housing stimulus should be aimed at the existing home market to clear inventory rather than at all housing, which could increase supply. Toll responded, "A stimulus package has to address the new home market. If you only address used product, you don't put people back to work."
Earlier, he said, "The engine of jobs in the U.S. is housing," estimating that the new housing and ancillary furniture, decorating and appliance sellers directly contribute more than $300 billion annually to the economy.
When asked by Zelman what would happen if Congress does not pass a housing stimulus package, Toll replied, "We'll sit and we'll wait. Sooner or later, the water has to go over the dam...and we'll see demand pick up."
Toll opened the call by noting that this is the company 41st year in business. He said that the current market differs from the recessions of1974-'75 and 1980-'81 in that then "we were worried about survival," while now, "we're looking for opportunities."
Yet those opportunities have yet to present themselves, he said. "We're now three years and three months into the downturn in housing," he said, "and by this time we should have seen more than we have seen." Toll explained that he believed the government's infusion of cash into the banking business has made it less likely that that government regulators would be inclined to force banks to divest non-performing assets that have been seized from failing private builders.