March 22 was the day when the pace of upscale home buyers willing to put down deposits on new Toll Brothers homes picked up, CEO Bob Toll told analysts during an afternoon conference call May 20.
Beginning then, the company's per-community deposits started exceeding last year's numbers for seven of the past nine weeks, Toll reported in a preliminary earnings release that did not include earnings/loss totals.
"More people are willing to run the risk that they will be able to sell their used homes in time for settlement of their new home," Toll said.
But imminent recovery isn't a sure thing yet. "Although the housing industry clearly is not yet out of the woods, we believe the U.S. government's forceful intervention in the capital markets has begun to restore some confidence that the financial system is on the road to stabilization," he said.
Increases in signed contracts was one encouraging sign in what was, overall, a discouraging second quarter for the Horsham, Pa.-based builder. While net signed contracts for the entire quarter, which ended April 30, were up 119% over the abysmal quarter before, they were still down 37% over the same quarter of '08.
Revenue, too, was down nearly 51% from the same quarter of last year. And backlog was off 48%.
Toll said the company's best market was the Northeast, which continues to perform better than all of its others. But Central and West Florida have improved and so has Dallas-Fort Worth.
The $10,000 California tax credit has helped improve business a bit there, and the Arizona market has ticked up slightly. "But remember, I advise to keep relativity in front of you," Toll said. "We're talking about from dead to breathing." As for Las Vegas, that's "still very, very dead."
As many other high-production builders have switched their markets to first-time buyers, cutting down the size and costs of their products to meet that buyer's needs, analysts questioned Toll's decision to stay in the business of providing move-up and high-end housing.
"We like our niche," Toll said. "We look forward to the market coming back and doing our thing."
"We believe that luxury will continue to sell as it has since the beginning of time," he continued.
The thought that Toll now has less competition in that niche offers little consolation to the company's CEO. "On a theoretical basis, I guess our share is increasing, but we take no comfort from that since the size of the market has shrunk so much."
Lower mortgage rates, in general, and shrinking rates for jumbo loans are encouraging factors for the builder's market. And Toll thinks that, coupled with improved consumer confidence, will eventually coax out the pent-up demand he is sure exists for the company's products. In the meantime, Toll is steadily reducing its number of communities, mothballing those it thinks will sell well in the future.
It can afford to wait. The company's financial position was strong at the beginning of the quarter and improved further during the quarter after it was able to issue $400 million in corporate bonds. It will use the proceeds to pay off nearer-term debt. After that, Toll will continue to have more than $1.5 billion of cash on hand and no public debt maturing until early in its 2014 fiscal year.
