Toll Brothers: Worst in housing nearly over

CEO of luxury home builder says lower cancellation rate means that their inventory could be sold down within four or five months.

March 7 2007: 3:21 PM EST

NEW YORK (Reuters) -- Luxury home builder Toll Brothers said on Wednesday it could "burn off" its inventory in many markets in four or five months if its lower cancellation rate persists, suggesting the weak U.S. housing market may be at a bottom.

"I would guess, and that's all it is, it would be another four or five months before you finally burn off inventory in most of the markets," Robert Toll, chief executive and chairman, said at Citigroup's Global Industrial Manufacturing Conference.

In the last five weeks, the number of potential home buyers who have put down a deposit with the company and then canceled their order has dropped to 16 percent from a 36 percent high, Robert Toll said.

The cancellation rate may rise because it tends to go up at the end of the quarter, he added.

If it continues to trend lower, however, it would mean Toll is adding fewer homes to its inventory. That could make it possible for the company to sell down its inventory in many markets within four or five months, although some markets could take longer, Toll Chief Financial Officer Joel Rassman told Reuters after the CEO's speech.

If other builders are seeing the same trend in cancellation rates, it would be a positive sign for the larger housing market, he said.

The U.S. housing market has slumped during the past year with high prices and interest rates slowing new residential construction activity, including a 14.3 percent decline in January housing starts.

But several CEOs whose companies are exposed to the U.S. housing market said last week at the Reuters Manufacturing Summit they are seeing early signs of a bottom in the sector.

Robert Toll also said the impact of rising default rates in the subprime mortgage market wouldn't be "too great" for luxury builders like Toll.

Toll Brothers' (up $0.70 to $29.50, Charts) shares gained 2.3 percent in mid-afternoon trade on the New York Stock Exchange. Rivals Brookfield Homes (Charts) rose 0.5 percent and D.R. Horton (Charts) rose 1.2 percent.

[wine]

"2007 is Going to Suck",

These cheerful words spewed today (3/7/2007) from R. Horton Chief Executive Officer Donald Tomnitz at a Citigroup Inc. conference in New York.

The full quotation, from Bloomberg, is: "I don't want to be too sophisticated here, but 2007 is going to suck, all 12 months of the calendar year."

It's worth noting that Toll has been somewhat inconsistent in its market forecasting, to say the least. As Bloomberg puts it ...

"After predicting that the home market was nearing a ``bottom'' in December, Toll last month reversed course as deposits failed to live up to expectations. Today, he tempered his comments by saying the market 'is still beset by speculation'' and that it may take longer in some areas to pare the number of unsold properties."