Toll’s Yearley Says Homebuilder Has Room to Raise Prices

Toll Brothers Inc., the largest U.S. luxury-home builder, has room to raise prices on its houses as the real estate market extends its recovery, Chief Executive Officer Douglas Yearley Jr. said.

Buyers are purchasing properties “sight unseen” in New York and demand is strong on the coasts, Texas and in suburban Detroit, Yearley said today at The Year Ahead: 2014, a two-day conference in Chicago sponsored by Bloomberg LP.

“We have plenty of room,” to raise prices, Yearley said. “I think 2014 is going to be a great year.”

Builders are benefiting from a tight supply of existing houses on the market, which is boosting values even as an increase in mortgage rates cools demand. Toll, based in Horsham, Pennsylvania, had an average home price of $703,000 in the three months through October, up from $582,000 a year earlier. Its prices are the highest of any publicly traded homebuilder, Yearley said.

While the housing recovery is “real,” Toll’s business softened since May, when mortgage rates began to rise, Yearley said. Consumers are concerned that the economy may slow, and Washington gridlock has led to weakening demand in northern Virginia, he said.

“Confidence is fragile,” Yearley said.

Rising Rates

The average rate for a 30-year fixed mortgage was 4.35 percent last week, compared with 3.35 percent in early May, according to McLean, Virginia-based Freddie Mac. It has retreated from a two-year high of 4.58 percent in August after the Federal Reserve said it would hold off on scaling back its stimulus aimed at lowering borrowing costs.

Toll’s customers generally make down payments of about 30 percent on their houses, so aren’t as dependent on mortgages for purchases, Yearley said.

Sales of previously owned U.S. homes fell in October to the lowest level in four months, indicating higher borrowing costs restrained momentum in the housing recovery, according to a report today from the National Association of Realtors. The median price increased 12.8 percent in October from the year before to $199,500, reflecting limited supply.

Toll’s revenue for the three months through October was $1.04 billion, up 65 percent from a year earlier, while the dollar value of net signed contracts increased 23 percent to $839 million, according to preliminary results.

Yearley said the company is expanding “significantly” in the suburbs of Detroit, while demand is “unbelievable” in Texas. The Midwest is among the softer markets, he said.

The company this month agreed to buy Beverly Hills, California-based Shapell Industries Inc. for $1.6 billion. The deal will more than double the number of California lots controlled by Toll to about 9,200, with most in coastal markets where land is hard to come by, according to Yearley.

The company’s shares gained 3.5 percent this year through yesterday, compared with a 1.8 percent decline in the 11-member S&P Supercomposite Homebuilding index.

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