Toll Brothers Inc., No. 14 in the 2006 BUILDER 100, is reporting a 21 percent decrease in revenue and a drop in home building sales of $1.21 billion in the third quarter ending July 31. The report also says the company's cancellation rate jumped to 23.8 percent compared to 18.9 percent in the previous quarter.
Robert I. Toll, CEO, says home buyer hesitation is one of the main factors in the market's slow sales. "We are now in the twenty-third month of a down housing market," he said in a company release. "Hesitant customers remain on the sidelines, unsure of whether home prices have bottomed."
"With supply plentiful and home sellers motivated to make deals, this may be the ideal time to buy a new home; the media, however, is warning people every day to beware," he continued. "We believe significant pent-up demand is building, based on solid demographics, a decent economy and still-strong employment. However, we caution that, with the uncertainties roiling the mortgage markets right now, the pace of home sales could slow further until the credit markets settle down. In the near term, tightening credit standards for borrowers should reduce the pool of potential buyers: Liquidity and affordability issues may impede some customers from closing, while others may find it more difficult to sell their existing homes."
Toll's order backlog (homes under contract that have yet to be sold) fell 34 percent to $3.67 billion for Toll in the third quarter. "Excess supply exists in most markets and there is concern that additional inventory will emerge due to mortgage defaults," Toll said. "Although some markets have remained strong and some appear to be stabilizing, albeit at much lower activity levels, most markets remain weak."
During Wednesday's teleconference, Toll identified challenges in markets in Massachusetts, New York, suburban New Jersey, Raleigh, Las Vegas, Reno, Colorado, Michigan, Minnesota, and Florida (which also had a high cancellation rate). Toll Brother's stronger markets were in Delaware, Connecticut, Hoboken, N.J. and Jersey City, N.J.
In addition, the home builder says it has 35 "delayed" communities across the country.
"If I haven't started a community there, I'll sit on it," Toll explained. "I don't mind carrying dirt; I mind carrying homes."
According to Toll, the beginning of the third quarter saw a record low of home shoppers. "The traffic was the lowest per community at the beginning of the quarter that we've ever had," Toll explained.
The CEO says buyers were coming back near the quarter's end, giving the company "hope." When asked about the company's sales strategy, Toll explained, "You don't have to sell differently - you have to market differently."
It was also revealed during the teleconference that 43 percent of their home buyers in the quarter obtained Alt-A loans.
According to Wachovia Capital Markets preliminary research, Toll Brothers' unit orders for the third quarter were below their estimates while revenues were above.
Toll Brothers, which operates in 22 states, builds luxury single-family detached and attached home communities, master planned luxury residential resort-style golf communities and urban low-, mid- and high-rise communities, principally on land it develops.
Learn more about markets featured in this article: Las Vegas, NV.