Evidence that the housing market has gotten better and may keep improving has gone beyond anecdotal tales and become strong enough to indicate a true reverse in market conditions, Toll Brothers CEO Bob Toll told analysts Wed. Aug 12.
“I just think the mood of the market has changed,” Tolls said during the afternoon conference call announcing preliminary quarterly numbers that were rosier than anybody expected. (for earnings details: http://www.bigbuilderonline.com/industry-news.asp?sectionID=363&articleID=1039179)
“I don’t think it’s greater affordability or greater ability to finance [that is driving order improvements], I think it’s a better feeling about the present and future of the economy. [The consumers], as we, were scared that we were all going into the toilet.”
While the number of people visiting Toll Brothers' communities still “stinks” the people who are showing up are serious buyers and they’re not quibbling as much about price.
“Heretofore, people would come in and, whether they made an offer or not, they would ask you ‘Where are you? What’s your price?’ And they would come back and back and back looking for more incentives and seeking a better deal and that seemed to be the only thing that was driving sales.”
“In the last few weeks they have been concerned more with the other aspects of the sale, such as lots and location, the general options, situations like what can be built, when can they get into the home. It’s no longer a price kind of equation.”
But how does he know that those changes are not just a temporary spike, an analyst asked.
“We don’t,” Toll answered. “We are as scared of a W [shaped] recovery as the next man, however the number of weeks of improvement that we have had were certainly more than anecdotal. You are talking about a whole lot of communities [and markets] in 20 states so we are getting pretty deep information.”
Toll says he thinks the order uptick represents a genuine sea change in buyer attitude. Just a few weeks ago, if someone said at a cocktail party that they had just bought a new home their sanity would have been questioned, he notes. Now it’s more likely that they would be quizzed on the deal they got.
“There is now fear on both sides,” Toll said. “We fear not selling, and they fear missing” a deal.
Toll thinks the turnaround is gaining momentum. “Once a market turns, it begets more turning,” he said.
It’s strong enough evidence to have Toll talking about pulling communities out of mothballs. “We believe it’s the right thing to do to try and crank it up more than to sit and wait for the W if the W’s going to come.”
Still, there are some doubts.
“We are scared,” he said. “We sit around on Monday night and discuss whether to go or not go. Now we are feeling a little more confident, and we hope we don’t get tripped, you never can tell.”
Answering an analyst's question about why he thought his higher-end housing is improving when the general consensus has been that starter home sales would lead the recovery and high-end homes would lag, Toll said he had no definitive answers, only speculation.
One is that Toll's houses, at $600,000 to $700,000, are expensive compared to what most production home builders’ build, but they aren’t truly the highest-priced homes.
The other is that Toll has less competition now because it tends to compete against small and mid-sized builders who are currently not building or have gone under because they had trouble getting financing.
“The brand name may be working twice, once for the luxury move-up, you want to move into a Toll Brothers home because it’s been your ultimate dream, but No. 2 is these guys are going to be here, the Toll boys are going to be here so that is where we want to go.”
Teresa Burney is a senior editor with Builder and Big Builder magazines.