Spring Housing Season Begins with One Good Weekend

By Dr. Duru written for One-Twenty

March 25, 2009

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On March 24, 2009, Susie Gharib from Nightly Business Report interviewed Toll Brothers (TOL) CEO, Robert Toll, about the state of the housing market as part of NBR's series "Reviving the Economy: What Should Business Do?" (forward to 6:00 in the video). Although TOL's market focuses on luxury homes, the CEO gets quoted a lot as an authoritative source on the health of the housing market in general. His comments have been used to call several (false) housing bottoms in the past as well. I took particular interest in taking notes on this brief interview because it is possible someone might interpret Toll's comments as proof of another bottom.

Apparently, this past weekend, TOL saw "stronger initial deposits than we've seen in a year." While Mr. Toll admits that it is too early to say "we've hit the bottom and the good times are on the way back to us," "it's a lot better than the alternative." Despite the caveats, his premise suggests that this one weekend points to positive signs for the housing market. I find it strange to make any extrapolations or declarations at all since a year ago deposits looked similarly encouraging and (presumably) went downhill from there. But every spring during this housing downturn, hope blossoms that a recovery will finally begin. Here is a summary of the rest of Mr. Toll's answers during the interview:

  1. Obama, Geithner, and Bernanke have called the bottom in housing through the various government programs that are underway. They have effectively said to the public: "If you don't go out and buy a home now, you are crazy." This kind of concerted government action has brought people back to the market.
  2. The bottom in pricing is here from the new home perspective. New home prices can only go so low otherwise a builder just sits on the lot and waits for a better day if you have the finances to hold out (TOL has the wherewithal).
  3. TOL does special incentives every 2 or 3 weeks per community.
  4. TOL is doing everything it can to bring buyers to the table and make deals go through, including restructuring the deal if something happens after the contract is signed.
  5. The next time around, after a recovery is in place, TOL hopes the industry is more careful with the land it commits to and the expansion it commits to. The problem is that one ever knows whether you are just approaching the cliff or whether there is a tall mountain ahead of you that if you just keep climbing you will get the best view of your life.
So, for all you crazy people who are still renting or still living in the same home you purchased over three years ago, go out and take advantage of government largesse and buy a new home. This time around, the view will be spectacular.

Be careful out there!

Full disclosure: Puts on XHB. For other disclaimers click here.

DR. DURU®, 2009