Toll warns on deepening housing slump
By Daniel Pimlott in New York
Copyright The Financial Times Limited 2007
Published: August 8 2007 15:07 | Last updated: August 8 2007 15:07
Toll Brothers, the largest US luxury homebuilder, on Wednesday warned that home sales might fall even further in the latest sign that the worst housing slump in 16 years has not yet reached its lowest point.
“With the uncertainties roiling the mortgage markets right now, the pace of home sales could slow further until the credit markets settle down,” said Robert Toll, chief executive, as he announced that Toll Brothers’ revenues fell in the company’s third quarter. “We are now in the twenty-third month of a down housing market. Hesitant customers remain on the sidelines, unsure of whether home prices have bottomed.”
Lenders have been raising requirements for home loans following a flood of defaults and late payments on homes purchased with subprime mortgages. This, combined with still falling prices across most of the US, has deterred home buyers, leading to a string of poor results and losses for major US homebuilders, such as KB Home and DR Horton, over the last year.
The cautionary note from Toll Brothers is particularly troubling because the company mainly sells high-end homes which have fared better in avoiding the fall-out from the subprime crisis. Toll’s earnings have still fallen every quarter in the last year.
Mr Toll warned the increasing obstacles to mortgage borrowing would deepen the housing crisis.
“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,” he said. “Excess supply exists in most markets and there is concern that additional inventory will emerge due to mortgage defaults.”
Toll said home building revenues fell 21 per cent at $1.21bn, at the upper end of its May forecasts of $990m to $1.28bn. The company sold 1,792 homes compared with its estimate of between 1,400 and 1,800. Its backlog dropped 34 per cent to $3.67bn and signed contracts slid 31 per cent to $727m. The cancellation rate was 23.8 per cent up from 18.9 per cent in the previous quarter.
Shares in Toll rose $1.06 to $24.01 in early trading.