Toll on a Roll: Seeing is Believing
Seers just don’t see; they see around the corners of time. They don’t forecast or predict. They observe what is there now, and from that, reveal what will come later.
Business has its Oracle of Omaha.
The housing business has its Haruspice of Horsham (Penn.): Robert I. Toll, chairman and CEO of the eponymous luxury home building organization that may be the best-known brand of its kind in America.
Bob Toll founded his Top 10 home building company 42 years ago — long enough to know downturns good, bad, worse, and indifferent. Wall Street tends to pay particular attention to what Bob Toll observes about the market for two reasons.
Reason 1 is that Toll homes are not central casting for those availing of the $8,000 first-time buyer tax credit; quite the contrary. An uptick in sales of Toll Brothers homes means at least some people are finding ways to a). sell their existing homes, b). arrange for financing–often non-conforming-JUMBO and even stated-income mortgages for self-employed professionals, and c). believe that the new home they’re buying will retain its value.
Reason 2 people on Wall Street listen to Bob Toll when he holds court about the new-home market? Many Wall Street executives live where Toll Brothers builds–not only in the metro New York market, but where ever finance is high and sometimes mighty. Some fair number of Wall Street execs call a Toll house home.
Enough intro. Here’s Toll verbatim from the company’s Q3 2009 earnings release:
Click to access profile.
“Although our industry continues to face significant challenges, we are encouraged by the increase in the number of net contracts signed this quarter. This marked the first time in 16 quarters – dating back to FY 2005′s fourth quarter – that our net contracts exceeded the prior year’s same quarter. It also marked the first quarterly sequential unit increase in our backlog in more than three years.
“The increase in net contracts was generated despite our having approximately 22% fewer selling communities during FY 2009′s third quarter than during FY 2008′s third quarter: On a per community basis, our net contracts were up approximately 32%. Despite the fewer selling communities, our FY 2009 third-quarter gross signed contracts of 915 units were down just 9% from the previous year’s third quarter (compared to a 40% decline in FY 2009′s second quarter versus FY 2008′s), and up 16% on a per community basis. This improvement, coupled with our lowest cancellation rate in over three years, drove the increase in net signed contracts.
“Typically, we sign fewer contracts in our third fiscal quarter than in our second, because our second quarter, which runs from February 1 through April 30, encompasses our primary selling season. This fiscal year, however, third-quarter net contracts exceeded second-quarter net contracts by 44%; this has occurred only three other times since we went public in 1986.
“Although some of our markets are still stuck in the mud, many are improving. While we have to work very hard for our sales, it does feel as if the fence sitters are looking for reasons to jump in on the side of buying. Price is no longer the overwhelmingly dominant factor.
“It appears that those taking this step today have more confidence than one year ago. This is reflected in our third-quarter rate of conversions of non-binding deposits into signed contracts, the highest since FY 2005, and our declining contract cancellation rate. FY 2009′s third-quarter cancellation rate (current-quarter cancellations divided by current-quarter signed contracts) was 8.5% versus 19.4% in FY 2008′s third quarter. This was our lowest cancellation rate since the second quarter of FY 2006, and is approaching our historic average of approximately 7% since going public.
“While the statistics above cannot be considered determinative of the luxury segment’s recovery, or that of the overall home building industry, we believe they are more indicative than anecdotal.
“Many markets feel better than they did six months ago. The consumer interest we saw in April and May leveled off a bit from mid-June through mid-July, but has regained momentum more recently. As the supply of unsold housing inventory shrinks nationwide and, if consumer confidence continues to improve, we should see stronger demand: It has already positively impacted our pricing power as we are reducing incentives in many markets.”
Consumer confidence improve even as people continue to lose jobs? That makes Bob’s “if” a big if. Still, now that Bob is seemingly done with his “worst market I have ever seen” refrain, we can say that the Haruspice of Horsham speaks of brighter days ahead.
… and speaking of Wall Street listening to Toll, it responded favorably to his “more indicative than anecdotal” statements prior to this morning’s opening bell.
NAHB Calls on Congress [on Recess] for Action
As always, interesting timing for the National Association of Home Builders. Both Houses of Congress are on recess until September 8, but the NAHB picks today to call on Congress “to extend and enhance the $8,000 first-time home buyer tax credit due to expire on December 1.”
The NAHB says that extending the deadline by 12 months and opening eligibility for the tax credit to all home buyers would account for an incremental 383,000 home sales, and an added 80,000 starts in the tough year ahead.
- We’ve written here earlier about the initiatives the NAHB is drawing attention to in its release.
Maybe the optimal time to call on Congress to do anything is when they’re home, away from the malarial marsh that is the District of Columbia in August. Away from the cacaphony of their own voices, perhaps they can hear better, and see better, and witness more truthfully what the hell is going on in their own back yards.
That’s what they’ll need to do.
Maybe the NAHB’s timing is deliberate. If not, perhaps it’s inadvertently brilliant. During time off, our elected [yes, here we did typo the word "exected" a couple of posts ago] officialdom may count their lucky stars that we may not be heading for the same kind of September and October we endured in 2008. They may actually try to take the pulse of their constituents on the issues hovering like massive dirigibles that on-and-off blot out the sun light–i.e. healthcare reform, the climate bill, and paying for it all.
If elected representatives actually listen, we wonder what convictions they will return to Washington with after September 8th.
What a fascinating time to believe in a government like ours. We elect Senators and Congressional representatives to serve our collective long-term interests and then spend all our time–deservedly–not trusting them to do just that.
If Senators and Representatives listen during their recess, what will they hear? Will they hear the NAHB calling on them to extend measures the trade group would succor an industry sector that pumps as much as 15% into the Gross Domestic Product?
Will they listen to people who’ve lost their jobs and have little hope of finding new ones commensurate with their skills and experience? Will they listen at all to small businesses–you know, the ones that accounted for all the new jobs added to the economy during the run from 2002 to 2007, that have now been gutted unceremoniously from the economy?
If Senators and Representatives listen to small and medium sized businesses during their three weeks’ recess, how will they feel about health care initiatives that will weigh so heavily on mid-sized and smaller business employers? How will they assess the impact of cap-and-trade measures that will add cost, time, and regulatory obligation to every turn when it comes to construction of anything habitable?
Oddly, the smartest economists cast doubt on our elected officials for not going far enough with their regulatory powers and responsibilities? Here’s Princeton University professor, Nobel Prize-winner and New York Times columnist Paul Krugman–if economists had tabloids at the checkout counter, he and Nouriel Roubini would be the Brad Pitt and Matthew McConoughey of their covers–waxing on on CNBC today about how the government has only begun the job of righting what has gone wrong with the economy and business.
We find it strange that those who are blessed with the intelligence and technical training to understand the most about how the wheels came off the financial system are mostly ones who say that more government is the answer.
Thing is, more government only means a higher price to pay and more time to wait for regulators and inspectors to finish what they need to do so that business peole can go about the business of repairing what is wrong with the economy, which is that there’s an over capacity of workers and too little consumption.
We find it to be interesting timing indeed that the NAHB–which should live, eat, breathe, and sleep the small to medium-sized business interests the trade group represents–should “call on Congress” for more government when more government only lades more of the onus on home builders that hire people and build carbon-emitting dwellings of one sort or another.
As we said, maybe the timing is brilliant, unintentionally.