Toll Brothers (TOL): Forget What We Said About Early Signs Of Housing Recovery

Every quarter since the beginning of the housing collapse, Toll Brothers CEO Bob Toll has seen cause for optimism. Until this quarter:

Unfortunately, the preliminary signs of stability we had discussed in early September, during our 2008 third quarter earnings call, were upended by the past month’s financial crisis. Results of this crisis — accelerating fears of job losses, a large decline in consumer spending, a significant capital crunch, increased credit market disruption, and plummeting stock market values — all contributed to drive our cancellations up to 233 units (about 30% of current-quarter-contracts, or 9% of beginning-quarter-backlog), and drive home buyer confidence and our traffic and demand down to record lows

Bob didn’t use the rest of the press release as an opportunity to revisit his housing-market forecasting methodology. Rather, he used it to appeal to the government to make it easier for Americans to buy his product. Specifically, he wants the government to “reduce mortgage rates” and create tax credits for anyone who buys a house:

‘As a result of the recent economic meltdown, we believe the government’s attention should be focused on shoring up the housing market, which is the root of the current financial crisis. We believe the government’s efforts must concentrate on stopping the decline in home prices by bringing potential buyers back into the market: stabilisation of home prices will help stem foreclosures, shore up the value of mortgage-backed securities, and, ultimately, stabilise the balance sheets of the world’s financial institutions.

“Congress has allocated hundreds of billions of dollars to reset mortgages, help people who are in foreclosure, and protect those who have been the victims of rapacious lending practices. We believe all of these goals are very worthy. However, we believe that, if home prices are not stabilised, these efforts will be for naught, more mortgages will go under, and the taxpayers’ money will have been wasted. We urge Congress to stimulate demand by reducing mortgage rates and fees and by providing incentives such as a buyer tax credit for the purchase of all types of homes. We believe these initiatives would offer the greatest benefit for the taxpayer’s dollar.

As for Toll Brothers: The company has finally decided to stop offering forecasts. Otherwise, to Bob’s credit, the company is doing an admirable job of weathering the storm. Business is horrible, of course–the company’s net contracts dropped by almost half year over year.  But TOL is selling optioned land and hunkering down, and it still has plenty of cash.

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