Toll Brothers On Housing
- Posted by ToddSullivan
- on August 23rd, 2012
In yesterday’s 3Q12 Earnings Conf Call Doug Yearley, CEO of Toll Brothers $TOL reported a relatively robust operating climate compared to 1yr ago. He commented that:
“Backlog of $1.62 billion and 2,559 units rose 59% in dollars and 44% in units.”
“We’re enjoying the most sustained demand we’ve experienced in over five years.”
The transcript of the call can be found at this link:
This morning July 2012 New Home Sales were reported at 372,000(Seasonally Adjusted Annual Rate)-see chart at the bottom. New Home sales have been rising steadily from May 2011’s monthly rate of 308,000.
The July 2012 Monthly Supply of (new) Homes for Sale was reported at 4.6mos in the chart immediately below which represents the strongest reading of housing demand since October 2005. Residential Construction Employment which had begun to rise June 2011 fell off as regulators imposed tighter credit requirements for lenders during the Greek debt crisis, i.e. among other things FICO scores were raised from the low-600s to 700+ beginning in July 2011.
Tight credit remains in place today which Yearley indicated remained a strong headwind in comments on CNBC Tuesday afternoon, August 21, 2012. He said:
“It’s not interest rates.”
“7yrs pent up demand…”
but wanted regulators to “…ease mg lending rules a little bit…gone too far…those who are well qualified cannot get mtgs.”
The interview is available at this link:
Even though credit has been tightened, prime borrowers who represent the Toll Brothers cliental have been buying at an increasing pace. It is the less than prime borrower who represent the majority of home buyers who have had difficulty in obtaining mortgages. This is reflected in the Residential Construction Employment (RCE) trends which began to rise in May 2011 and then fell off. Nonetheless, the pressure from basic shelter needs appears strong enough to causing another rise in RCE beginning April 2012.
Housing activity is a large sector of the US economy and it is not something which turns quickly from one month or even one quarter to another. Even so, it appears that demand for housing is beginning to push employment higher at the current level of tight credit and this indeed is very bullish. Strong demand for any basic need is an almost non-stoppable economic force! I expect future national employment reports to reflect a continued general rise in the numbers of employed individuals and more specifically I expect to see higher RCE levels.
Economic data does not lie. It does not have a reason to be politically biased. It is simply a count of things being made, bought, consumed, exported and etc. Whatever the trend, the securities markets will eventually be priced accordingly.
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