Monday, April 17, 2006

Tale Of The Bubble's Toll On Toll Brothers

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The Philadelphia Inquirer has a story about the fall of Toll Brothers' stock, and the builder's hopes to bring back homebuyers this year.

Sounds like they're betting too much on Martha Stewart to me.

Here's an excerpt:
As the nation's housing market boomed in 2004 and 2005, managers in Toll Bros. Inc. subdivisions e-mailed staff reports back to headquarters every Sunday with information on customer traffic counts, deposits, signed agreements, and lost deals.

Chief executive officer Bob Toll and top executives would meet Mondays to talk over the tallies. For a time, based on those discussions, the Horsham company increased base prices by $3,000, $5,000 or even $10,000 every week or two.

Home prices shot upward and so did profit. In the year many consider the peak of the housing boom, Toll earned almost $92,000 per home, which was 47 percent higher than 2004's per-home profit and three times the 1999 level.

The company's 13.9 percent after-tax profit margin on the 8,769 homes it sold last year was the highest among big publicly traded home builders, as were per-home profit and per-home prices, according to corporate regulatory filings with the Securities and Exchange Commission.

Dean Baker, a national housing expert, called Toll's per-home profit "incredible" and an example of how the so-called housing bubble has fueled growth at home builders. The profitability likely propelled Toll Bros. to construct and sell as many of its high-priced luxury homes, some call them suburban mansions, as it could, he said.

"We're going to get a lot of high-end luxury housing if you're getting those kinds of margins," Baker said.

But Toll Bros. is paying for the good times. New orders for its homes fell almost 30 percent in the quarter that ended Jan. 31 as the housing market cooled. The company's stock price has plunged 40 percent since early August, closing Thursday at $32.74.

Toll Bros. also is opening more than 140 new subdivisions to replenish its stock of available homes, which ran down more quickly than it anticipated in 2005. The openings will add overhead costs this year. Toll Bros. hopes that the excitement over the openings will bring back home buyers.

-- The Boy in the Big Housing Bubble/Los Angeles and Beyond