All kidding aside, much of the market is psychological.
November 9, 2007
Blame for Poor Home Sales? It's the Press, a Builder Says
By FLOYD NORRIS
The housing market is horrible in most parts of the country, says the
chief executive of the luxury home builder Toll Brothers, and he fears
it will not get better until the newspapers stop saying how bad it is.
Toll Brothers, which has operations in 22 states, said yesterday that
it expected to take a write-down of $250 million to $450 million
because of declining land values when it reports results for the
quarter that ended Oct. 31. The company said sales for the quarter
fell 36 percent, to $1.17 billion, and that customers backed out of 39
percent of their orders, the highest rate ever.
Robert I. Toll, the chief executive, handed out grades for 37 markets
that the company operates in, and most got a mark of F or worse.
"The fact that I differentiate between F, F-minus and F-minus-minus"
shows just how bad things are, he told analysts during a conference
call. He said those grades "go from miserable to outright purgatory."
The lowest grade went to Las Vegas and Tampa, Fla.
"Perhaps as the presidential campaign heats up and moves to the front
page, negative articles about housing will move off the front page,"
he said. "Then, hopefully, the positive underpinnings of low interest
rates, low unemployment and a decent economy will raise new-home-buyer
confidence."
The company said many of the canceled home purchases were for its more
expensive homes. The average price of new orders in the quarter was
$646,000, but the average price of canceled orders was $788,000.
He said a survey of Toll customers who canceled contracts showed that
only 11 percent reported trouble getting mortgages. More either had
personal financial problems or were unable to sell the homes they
already owned. "People who just wanted to walk" accounted for 17
percent of the cancellations, he said.
"Translation, they've read one too many Times articles, and decided
now is not the time to buy a home," he said.
Nearly all the decent grades went to markets in and around New York
City, while some of the worst grades were given to once-hot
second-home markets.
The best grade, B-plus, went to Toll's "city living" apartment
projects in the New Jersey suburbs of New York, while similar projects
in the city received a B, as did Princeton, N.J., and the states of
Delaware and Connecticut. The suburban New York counties of Dutchess
and Putnam, which he views as one market, earned a C-plus.
The F-minus grade went to the vacation communities of Hilton Head,
S.C.; Palm Springs, Calif.; the Maryland shore; and the Poconos area
of Pennsylvania, as well as to Michigan and Atlanta.
The F grade was the one most often given, going to Arizona,
Massachusetts, Rhode Island, Minnesota and Southern California outside
of Palm Springs. The cities of Chicago; San Antonio; Charlotte, N.C.;
and Reno, Nev., got the same mark, as did the eastern and northern
parts of Florida. Mr. Toll noted that Minnesota had improved to get
its grade up to an F.
Another area that has improved, he said, was the western part of
Florida, which moved up to a C, although he said that might reflect
Toll's aggressive price cuts. He also awarded C's to the Texas cities
of Austin and Dallas. Colorado got a C-minus.
Raleigh, N.C., fell to D-plus, while D's were given to most of New
Jersey and to Northern California, as well as to Washington and its
Maryland suburbs, and the Philadelphia suburbs. D-minus was the grade
for West Virginia and central Florida, including Orlando.
Mr. Toll said the downturn was worse than the one in the early 1990s,
adding "the growth in the rate of cancellations, the decline in new
contracts, and the weaknesses we observed in October suggest that we
still have tough times ahead."
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