A Luxury Home Builder's Take on the Housing Market

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A Luxury Home Builder's Take on the Housing Market

Fortune Magazine has an interesting interview with Bob Toll, CEO of Toll Brothers, a luxury home-builder in Florida.

How bad is it out there?

I don't see the market getting better until, at the earliest, April of 2008. But I do think that when a recovery occurs, it will be much quicker than it has in the past because of pent-up demand. You've got decent job growth, low unemployment, low interest rates, great corporate earnings reports and tons of money being created and sloshing around the world.

Weren't you worried about speculation in Florida and elsewhere during the boom?

There wasn't anything we could do about it. We would make people sign in triplicate swearing up and down that they weren't speculators, but we couldn't control whom the builder next door was selling to. And when the market goes south even slightly, the investor-speculator says, "It's time to cash these things in."

Some analysts think new-home prices would have fallen even further if not for all the incentives - high-end kitchens and the like - that builders are offering.

When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining, saying, "Why are you doing this to me? Why don't you just put a sign on my lawn saying, 'I'm a schmuck?' " So you've got to give incentives instead of lowering prices because you don't want to be rude, crude and barbaric to your clients.

There's been a lot of speculation that with homebuilder stocks down so much, they might be takeover targets for private-equity funds. Do you see that happening?

I think that every builder has been approached and had conversations, but obviously they haven't gone anywhere. Say an LBO fund approaches a builder, saying, "Look, your stock was $50, it's now $25. I'll give you $30." Well, why should I sell for $30 when every time the market has come back we've gone to new highs? I'm better off just battling through this and making it back the old-fashioned way - by earning it.