Toll Brothers Releases 2Q2008 Market Status
A Sign of Real Estate Market Progress?
On May 13, 2008 Toll Brothers, the nation’s leading luxury home builder, reported second quarter 2008 and six month totals for home building revenues, contracts, and backlog for the period ended April 30th 2008. The results were preliminary and unaudited and will be certified with the actual 2Q2008 earnings release scheduled for June 3rd 2008.
It isn’t news that the numbers were terrible. There are more than a couple reasons that Toll Brothers could blame for their poor performance. What is important is Toll Brothers outlook for the sector and market overall. The financial performance of Toll Brothers is an excellent indicator of the overall health of the primary residential real estate market because of their size and scale of operations. Toll is currently building developments in many parts of the country including some of the most beleaguered zip codes.
Jim Cramer, famed host of the TV show Mad Money on CNBC, aired an interview with Robert Toll, CEO of Toll Brothers the week of 5/13/08. In this interview Robert Toll gave a candid summary report card of how Toll developments are doing across the board in the United States. He commented how traffic is down and if it were a school report card it would be one, “in which you would talk to you child upstairs for a couple of hours, and then come down and have a stiff drink. Most developments would receive a grade of F, F+, F- .” These comments come as no surprise as the media has been very clear and consistent in highlighting all of the real estate market negativity.
Robert Toll went on to make one very important statement; He commented that one area actually has seemed to turn a bit. To the surprise of many people, Toll commented that in Naples, Florida they have actually been able to RAISE PRICES! Toll stated, “One year ago in Naples, Florida we (Toll Brothers) were unable to give a house away, no matter what the price. People were walking away from their deals and forgoing their deposits because they didn’t want the homes. Although we (Toll) kept their deposits we were left with tons of finished inventory and unsold houses. Since that time, most if not all of the inventory has been worked off and we have now raised prices commensurate with demand.” (CNBC, 2008)
The reason this is an interesting event is because Naples, Florida was one of the first and hardest hit locations in the country during this recent real estate market downturn. The blood was in the streets and it appeared that even if you gave the homes away, nobody wanted them. It seems as though this now may be changing, at least in this one particular location. Does price increases in Naples, Florida indicate the bottom of the entire real estate market, and from here all will go up as desired? Probably not, but what it does show is progress and a light at the end of the tunnel.
We felt it important to share Mr. Toll’s sentiment with you as it is easy to lose sight of progress amidst piles and piles of daily negativity. As a real estate investor it is critical to gauge negativity levels in investment marketplaces as many people have had more long term success buying quality real estate assets at the time when nobody else wants them. Making money “following the herd” and mimicking what everyone else is doing is often harder than taking strategic, long term positions in historically strong markets which will eventually re-surface. We urge you to look for small signs of progress in negative markets because one day the negativity will stop and reverse. We don’t want our clients to be among those trying to “time” the market and getting caught off guard, unprepared, and back in the undesirable position of trying to make money chasing an up market once again. For more information or questions please visit us at http://www.legacyresortconsulting.com