Toll Bros CEO: Phoenix and Colorado Market is Strong

[powayseller]

Builder: Oversupply slump worst in 40 years

What planet in Phoenix is he talking about? Doesn’t Colorado have the highest foreclosure rates in the US? It appears Toll is thriving in spite of it all…

He’s hoping for a turnaround to the frenzied buying days, once inventory is reduced:

“Toll said the company believes that, as there is a cutback in supply by builders, the housing market should be able get back on the growth track of recent years.

“With many potential buyers on the sidelines right now, we believe there is growing pent-up demand that will come into the market once buyer sentiment improves.”

Toll said on a conference call Wednesday afternoon that he expects the slump to last at least through the end of the year, however, adding it could drag on for another two.” – CNN Money

[sdduuuude]

‘ “With many potential buyers on the sidelines right now, we believe there is growing pent-up demand that will come into the market once buyer sentiment improves.” ‘

Translation: “Dead Cat Bounce”

[powayseller]

While on the subject of potential buyers, I am reminded of comments on this forum about people with boatloads of cash sitting around. According to this WSJ article, “the top 1% held 33.4% of the nation’s net worth in 2004… the wealthiest percent owned 70% of bonds, 51% of stocks and 62.3% of business assets. Housing Wealth Effect Shifts Into Reverse

So these people with boatloads of cash probably represent 1% of the population. For all intents and purposes, they are meaningless in terms of affecting the housing market. The 80% of people who took out exotic loans to get into a house: that group will drive this market.

[ybc]

It’s better to exam what they do instead of what they say. CEO Bob Toll sold a lot of stocks at the top of the market in 2005. This year he exercised a lot of stocks, but didn’t sell. So maybe he’s more confident about his stock at this level. Although if he’s really really confident, should have bought back some stocks…

[IONEGARM]

http://biz.yahoo.com/cc/5/72175.html

Check out Ivy Zelman of Credit Suisse hammering Bob Toll and company at the 10:03 mark of yesterdays Outlook call.

All the builders blame oversupply, she switched it around and asked about being oversold, just a lot of great quotes in there. Between affordability and oversold questions she had management on the run.

I cant believe Bob Toll had the balls to say it was possibly the bottom now.

[carlislematthew]

So these people with boatloads of cash probably represent 1% of the population.

AND most of them already own a house and probably won’t want to buy another one once the prices start to drop and they get scared.

IMO, there are quite a lot of people out there with cash, waiting to buy. However, I think the number is small enough that it won’t have a big impact. Perhaps in some areas, it might – 800K+ homes (current pricing) near the coast perhaps. But those people with the cash just aren’t going to move into a starter home in Mira Mesa once they come down to 300-350K!

[powayseller]

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.

[IONEGARM]

You definitely have to listen to the conference calls when they come up, usually each one has one or two nuggets that dont make any press release.

I loved how Ivy kept interrupting him and said “It would make me feel a lot better moving forward if the large homebuilders acknowledge the problem (or the possibility of a problem” (paraphrase)

The only thing she missed was asking about non-30 year fixed financing. Otherwise her call was a homerun.

Bob Toll will speculate wildly about “pent up demand”, but as soon as she speculates that their might not be pent up demand and asking his contingency for that, he says he doesnt like to speculate…

And you are right, most analysts do not ask the tough questions at all on a phone call.

Here is my stock list I watch for homebuilders, it is nowhere near complete, but allows me to hit the press releases and conference calls as they trickle out.

CTX DHI HOV KBH LEN PHM TOL MTH RYL BZH SPF ^TNX TOA WCI DHOM WLS MDC NVR BHS

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