Thanks for the Toll conference call link. I listened to the entire call, and it was my first time listening to a homebuilder call. Robert Toll was open and forthcoming, but he did give our clever Ivy a little spin, which she did not allow.
Let me paraphrase
Toll: Growing pentup demand from buyers on the sidelines, and rising household formations. When inventory reduces and buyer sentiment changes and demand again improves, the current building slowdown will result in a shortage of homes.
Feldman: Haven’t we “pulled forward” demand in 04 and 05? Where is this pent-up demand?
Toll: [changing topics] interest rates are still low. The 30 year rates went up from 5.5% in 04 to 6.126% today, so that is a negligible increase.
Feldman: But you are looking at only half the picture. The mortgage payment consists of interest rates AND the mortgage amount. Prices have really gone up, and people are spending 40% of gross income on mortgages…..I am very disappointed that builders have not come forward to talk about demand. It’s not just about supply. It’s concerning that builders are acting like this is a short-term phenomenon.
Toll: Yes, affordability is tougher.
Feldman: Asked about impairment risk
Toll: [refused to speculate about future impairment risk]
Another analyst asked about demand in each market. Toll gave a grade to each market, mainly C, D, and F.
What has helped Toll is their policy of requiring 7% non-refundable deposits on the homes prior to building them. This approach makes buyers less likely to walk away from the homes. Yet, their cancellation rate is a problem too.
A big surprise is that most of these analysts acted morel ike reporters than accountants. I expected more hard number questions about the financial statements, backlogs, deposits, land, DOM of their homes,e etc. Perhaps this is already covered in their written statements.
