Toll Brothers CEO Sees Nascent Rebound in U.S. Home Sales as Worst Over
“The recovery is here to stay,” Yearley, whose company is the largest U.S. luxury-home builder, said in an interview yesterday at Bloomberg’s headquarters office in New York. “I think 2011 will be an improving year, but I think 2012 will be a big year for us.”
The real estate industry, the trigger of the worst recession since the 1930s, is struggling to maintain a sustained recovery as foreclosures mount and the nation’s unemployment rate sticks close to 10 percent. The housing market will avoid a double-dip after reaching a bottom last year, Yearley, 50, said.
Pending sales of U.S. homes unexpectedly rose 10 percent in October from a month earlier, the National Association of Realtors reported Dec. 2. Toll Brothers, based in Horsham, Pennsylvania, is seeing more “quality” visitors at its sales offices, a sign that buyers are less skittish about the market and more serious about making purchases, Yearley said.
“The number of visitors isn’t up,” he said. “But the quality of that visitor -- the questions they’re asking, their level of interest in a new home -- is.”
Second Quarterly Profit
Toll Brothers last week reported its second straight quarterly profit after three years of losses as it recorded a benefit from a tax-law change and decreased writedowns on land. For the fiscal year ended Oct. 31, the company had a loss of $3.37 million and revenue of $1.49 billion, down 76 percent from 2006 peak sales of $6.12 billion.
Toll Brothers shares fell 21 cents, or 1.1 percent, to $18.79 as of 4:15 p.m. in New York Stock Exchange composite trading today. They are little changed this year, compared with a 3.8 percent decline in the Standard & Poor’s Supercomposite Homebuilding Index of 12 companies.
U.S. home prices will decline as much as 11 percent as weak demand and rising inventory extend the housing slump into 2012, according to a report today by Morgan Stanley.
“We see the trough occurring in 2012 instead of our previous call of 2011,” Morgan Stanley analyst Oliver Chang said in a telephone interview from San Francisco. Values will be little changed for three to four years after 2012, gaining or losing about 2 percent without factoring in inflation, he said.
2014 or Later
Almost six in 10 U.S. adults say a housing recovery is at least two years away, according to a survey released yesterday by Trulia Inc. and RealtyTrac Inc. More than a third of respondents said the rebound won’t happen until 2014 or later.
Home prices, as measured by the S&P Case-Shiller Index of values in 20 cities, are down 29 percent from their 2006 peak.
Unemployment is the biggest barrier to rebounding sales, according to Yearley. The U.S. jobless rate climbed to a seven- month high of 9.8 percent last month, the Labor Department reported Dec. 3.
President Barack Obama has also slowed the economic recovery by being too critical of business, Yearley said.
“The guy needs to cheerlead,” he said. “He needs to get the country feeling good about the country and get the country to work. There’s this malaise that hangs over it.”
The Obama administration’s homebuyer tax credit pulled sales forward rather than creating new demand, Yearley said. Home sales were boosted by the benefit earlier this year before sliding after the April 30 deadline for contract signings.
Purchases of new homes dropped 8.1 percent in October to a 283,000 annual rate, the Commerce Department reported Nov. 24. Sales reached a 275,000 pace in August, the lowest since data collection began in 1963.
A more effective incentive would have been to offer tax credits for people who buy new homes, which create more jobs than resales, according to Yearley. Such a plan is unlikely to come to fruition, he said.
“Chicago to us is as bad as Las Vegas,” he said. “We sell more houses in Michigan than Illinois.”
The company expects to sell between 2,100 and 2,900 homes in fiscal 2011 at an average price of $540,000 to $565,000. The homebuilder sold 2,642 units in the recently ended fiscal year, down 11 percent from 2009.
Toll Brothers is poised to benefit when the market recovers because many of its smaller competitors have gone out of business, larger public builders don’t compete in the luxury market and few companies have land ready for development, Yearley said. Toll added almost 3,000 lots to its inventory in its most recent year, the first increase since 2005.
“We’re setting up for the next cycle,” Yearley said. “Housing brought this country down and we need housing to bring this country back.”
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