Things Sure Feel Better at Toll Brothers

One of the most common bits of conventional wisdom surrounding the housing crisis has been that the upper end of the market was just beginning to tank and would suffer for some time. The logic behind the argument is that with the destruction of equity that’s occurred there is and would continue to be a dearth of move-up buyers.

I bought into the argument and I’m not sure that I’ll cast it aside quite yet, but this post from HousingWire makes me pause:

Horsham, Penn.-based Toll Brothers (NYSE:TOL) said it signed more contracts during the third quarter of its fiscal year 2009 than it did in the year-ago quarter, even though it has fewer selling communities.

The lift in signed contracts along with a drop in cancellations has the luxury homebuilder cautiously optimistic that upscale housing may be rebounding, despite the company’s $472.3m quarterly loss.

Toll Brothers has 22% fewer selling communities in Q309 than in Q308, but same-store net-signed contracts were up 32% year-over-year, the first yearly increase since the builder’s fiscal Q405.

The builder reported 78 cancellations during Q309, a rate of 8.5%. That’s better than 161 (21.7% cancellation rate) in Q209 and 195 (19.4% cancellation rate) in the year-ago period. It’s the builder’s lowest cancellation rate since fiscal Q206.

“We believe declining cancellations and more solid demand indicate that the housing market is stabilizing. We are reducing incentives and raising prices in selected communities,” chairman and CEO Robert Toll said in a statement. “We believe that customers are recognizing that now is the time to get into the market to take advantage of near-record affordability and what is still, for now, a buyer’s market.”

Interesting trends there. I suppose there are quite a lot of people who have been relatively untouched by the recession who look at now as a great time to pick up a deal and undoubtedly there are owners who have no mortgage that might well be willing to take what the market will give them in order to move up. I can’t read much more into it than that and, if I’m right, then that might only signal some demand that’s a mile wide and an inch deep.

Still, it’s an interesting development and suggests that the homebuilders in this sector of the market might have more going for them than many suspect. It might be worth a closer look at some of their stocks.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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