The biggest luxury homebuilder in the US crushed earnings, but admitted the biggest problem in the housing market

Toll Brothers, the largest luxury homebuilder in the US, reported strong earnings Tuesday, but admitted to one of the biggest problems in the housing market.

The homebuilder, which focuses much of its business in the high-end market in California and New York, reported earnings of $0.51 per share in the second quarter, beating estimates of $0.46 per share. Revenue also beat expectations at $1.12 billion versus analyst forecasts of $1.04 billion.

Robert Toll, executive chairman, was encouraged by the business to start 2016, but also admitted the biggest problem facing the housing market.

“We continue to believe the drivers are in place to sustain the current housing market’s slow but steady growth,” he said in a release accompanying earnings.

“Interest rates remain low, the job picture continues to improve, home equity values are rising, supply remains constrained and the industry is still not building enough homes to meet the demand that current demographics imply are needed.”

Indeed, as we’ve mentioned before, the implied demand in the housing market is running well above the number of homes being built, pushing prices higher and keeping many first-time homebuyers out of the market.

Toll, while not a starter homebuilder, reported completions 1,304 in the quarter, up 9% from the second quarter of 2015. However, average prices rose 19% to $855,500 a home from $713,500 during the same time period last year.

Toll also said that the number of houses completed in the future would need to increase to allow millennials to access homes. Typically when new homebuyers enter the market, this moves people already in first-time homes up to larger houses, supporting luxury builders like Toll Brothers.

“Another U.S. Census report last Tuesday noted that single family housing permits had risen by 8% in April from one year ago,” said Toll. “As millennials mature, studies indicate that their appetite for home ownership is consistent with past generations, which is encouraging for our industry.”

Thus with increasing demand, more homes need to be built. Which is good news for homebuilders like Toll.

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