The Housing Chronicles Blog: Robert Toll speaketh again

Wednesday, June 4, 2008

Robert Toll speaketh again

You do have to hand it to Toll Bros. CEO Robert Toll: he does like to speak his mind. Perhaps it's because he's not a hired hand to lead just another public company, but helped build the company from the ground up and so has seen his share of peaks and troughs. In his latest remarks -- made a day after reporting a less-than-expected loss for the second quarter -- Mr. Toll insists we're in a housing 'depression' that could last another couple of years:

The chief executive of Toll Brothers Inc., the nation's largest luxury-home builder, said Wednesday the housing industry is in a "depression" and any recovery could be two or three years away.

In candid remarks at the JPMorgan Basics & Industrials Conference a day after reporting a second-quarter loss, Robert Toll said he's not ready to call a bottom yet since the housing market could still get worse.

"Can the market go down another 10 or 20 percent? Sure," said Toll, whose Horsham-based company will sit on cash unless a bargain land deal comes along.

He said the current housing crisis is the worst he's seen since the mid-1970s, but back then the decline was relatively short-lived. The current downturn started in late 2005...

Buyers' lack of confidence that home prices will stop sliding is what's keeping them out of the market, rather than lack of access to credit, he said.

He said the underpinnings for a healthy housing market are still in place: low interest rates, a low jobless rate, increases in population and accumulation of wealth. Moreover, home prices have fallen to levels seen around 2002 and 2003, making them more attractive to buyers.

When the market recovers, home prices will march right back up, Toll said.

In the meantime, builders face another headwind as the cost of materials rises -- and there aren't a lot that can still be cut.

"Labor has gone along with us and squeezed themselves to the bone," Toll said.

As for materials, he added, "there's a whole bunch of them that's oil based ... I see costs going up from here. So we're caught in a squeeze. Certainly, our clients aren't going to pay more money because our costs our going up."

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