Toll Brothers (NYSE:TOL), Horsham, Pa., in an unusual mid-quarter disclosure of sales activity, on Wednesday said per-community deposits this month have been running 20% behind the same period last year and that traffic was off approximately 3%.
In a statement issued in advance of the Reuters Real Estate Summit scheduled for Thursday, June 17, 2010, Toll CFO Joel H. Rassman said, "Although we typically do not comment on our intra-quarter activity, given our participation in upcoming events involving the business media and financial community, we wanted to provide an update on the state of the housing market over the past few weeks and the impact of the recent highly-publicized belt-tightening by consumers ... While much of the attention surrounding the recent decline in housing indicators has focused on the expiration of the housing tax credit, we believe our customers' buying decisions have been driven more by consumer confidence than by the tax credit. As we noted in our second-quarter earnings press release of May 26, 2010, we believe the volatility in the financial markets and the high U.S. unemployment rate continue to weigh on the nation's psyche. Additionally, in the past several weeks, concerns about the financial crisis in Europe and escalating regional political tensions, coupled with worries about the oil spill in the Gulf of Mexico and its effects on the economy and the environment have negatively impacted the outlook of American consumers."
Rassman said the company is slightly ahead of last year's thrid quarter pace of signed contracts per community for the first six weeks of the third quarter, which began May 1. However, he noted that community count is down 21% from last year's quarter. The company historically has signed contracts for 8.23 homes per community in its second quarter and 6.21 in its third quarter, Rassman explained.
" We signed 4.32 contracts per community in fiscal year 2010's second quarter. Although better than fiscal year 2009's second quarter, this was approximately half our historical average," said Rassman. "Because we typically sign fewer contracts per community in our third fiscal quarter than in our second fiscal quarter, we currently anticipate that our total net signed contracts in FY 2010's third quarter will be less than those signed in our FY 2010 second quarter."
Still, Rassman said the company maintained its relatively positive outlook. "Although demand in recent weeks has been quite choppy, in general, we continue to believe that the housing market has emerged from its darkest period of late 2008 through early 2009. Interest rates remain near historic lows, affordability is near historic highs and there are positive signs of growth in the economy. We believe pent-up demand exists. At the moment, consumers view the economic glass as half empty: volatile financial markets, global deficit concerns and the oil spill in the Gulf are all contributing to this gloom. We believe that once the employment picture begins to brighten and the economy stabilizes, consumer confidence will improve and the housing market should begin a steadier recovery."
David Goldberg, home building analyst at UBS, took the report in stride. He wrote in a research note, "We still believe the company is gaining share from financially constrained competitors. Further, these results support our forecast for volatile demand in the near term before conditions stabilize toward year end."