Homebuilder Toll Brothers Trims Losses, Predicts Recovery (Again)

Overly optimistic home builders helped fuel the housing bubble. Now the country's largest luxury homebuilder is back -- as overly optimistic as ever. Should buyers believe the hype?

In case you missed it: Toll Brothers reported that its losses shrank in the second quarter to $40.4 million or 24 cents a share, compared with $83.2 million, or 52 cent a share the previous year. In a sign of better times to come, net signed contracts rose 41 percent to 820 units. The contract cancellation rate also slowed, to 5.3 percent from 21.7 the year before. The news was good enough to push Toll Bros' shares up 3 percent.

But wait. Was this an anomalous blip due to the homebuyer tax credit, which expired April 30? (Nice coincidence: The company's fiscal third quarter ended April 30.) I thought everyone is worried that the credit simply jammed all the demand into the first four months of the year.

Not so, says Toll Brothers' CEO Robert Toll.

"It appears our business has finally emerged from the tunnel and into a bit of daylight," he says in the earnings release.
"May's activity suggests that for us the tax credit wasn't the determinative factor. Rather, we believe the past few months' activity has been driven by an increase in confidence among our buyers in their job security, their ability to sell their existing homes and general trends in home prices."

Toll is referring to activity in the first three weeks of May, which saw traffic from interested buyers rise 23 percent and non-binding reservations gain 11 percent.

That doesn't sound like a very solid argument.