Toll Bros. and Shea team up for new Lake Forest MPC

In what is definitely some good news for the slowly rebounding housing market, luxury builder Toll Bros. and Shea Homes plan to build more than 2,000 homes and apartments on nearly 400 acres at Baker Ranch in Lake Forest in Orange County.
From the story:

Economists and analysts said the involvement of Pennsylvania-based Toll Bros., the largest builder in the luxury niche, was an encouraging sign for the market, jump-starting a long-planned development and infusing it with some high-end cachet.

"It is the most promising news announced since the bust, and since we have had this very slow turnaround," said Patrick Duffy, principal of MetroIntelligence Real Estate Advisors. "This is the first big announcement of this kind where they are going after the upper-end buyer, so I think there is the assumption that people are going to be able to sell their existing homes and pull out their equity to move up."...

The renewed interest in large-scale development of homes in Orange County means that builders are increasingly confident that the move-up market for homes is beginning to recover, said Duffy of MetroIntelligence Real Estate Advisors.

Much of the scarce development in Southern California since housing tanked has been in the Inland Empire, where builders have focused on small, affordable properties that can compete with foreclosures.

Home sales and prices overall in California have been improving this spring, although few experts anticipate a return to the frenetic buying and selling of the bubble years.

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A return of homebuilding stocks?

Although it may still seem way too early to call for a rebound in housing stocks, a writer for Fortune magazine argues that there are some early signs that *some* homebuilders might be worth a look. From the article:

Is it finally time to buy homebuilder stocks? The basic math of the real estate market is now working in favor of an industry that, believe it or not, has done a remarkable job paring costs and harboring its financial strength for the recovery that's now dawning.

The two main bellwethers for housing's future - the supply/demand equation and affordability - are both pointing towards a recovery. The timing is impossible to predict, though the best guess is that home sales will stage a resurgence beginning late this year or in early 2010...

Fundamental demand is driven by household formation, which in turn depends on two factors: the rate of immigration and the number of Americans entering the labor market. Distilling all the data, the Congressional Budget Office reckons that new households can absorb around 1.5 million new houses, condos and rental units a year...

Since the number of new homes and apartments now isn't nearly big enough to accommodate the immigrants and young workers crowding the labor force, residents are buying and renting the existing units (albeit at a slow pace). That's driven the excess inventory down to less than 900,000 units. At the present slow pace of homebuilding, the glut will disappear by the end of 2009.

The other force behind the housing rebound: Call it the "New Affordability." According to the most recent Case/Shiller data, prices in many of the bubble markets have fallen at least 40% from their peaks. The declines are drawing people out of rental and into the home-buying market...

D.R. Horton (DHI, Fortune 500) America's biggest homebuilder specializes in the market's sweet spot: starter homes for first time homebuyers. Those customers don't need to sell their existing home to buy one of Horton's - they typically move straight from a rental...

Toll Brothers (TOL) At first glance, Toll would seem an unlikely pick since it specializes in mass-produced, luxury market of homes at $600,000 and up. But the stock is selling at a substantial discount to its peers (based on price-to-book-value)...

Meritage Homes (MTH) Meritage derives half its sales from Texas, one of the fastest growing states in the country. It's shrewdly changing its specialty from almost $300,000 send-and-third move up homes to starter houses priced at around $200,000...

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."