Reviving the Economy: What Should Business Do?"
Toll Brothers CEO Robert Toll on Housing Market Improvements
Tuesday, March 24, 2009
SUSIE GHARIB: Some early signs of improvement in the housing market, a Federal housing regulator said today that home prices climbed 1.7 percent in January and a recent survey by the National Association of Realtors shows that existing home sales jumped 5 percent in February. One of the nation's biggest homebuilders, Toll Brothers says there's some activity in its luxury home market. I spoke with CEO Robert Toll earlier today as part of our series, "Reviving the Economy: What Should Business Do?" and began by asking whether he's seeing a pick up in home buying.
ROBERT TOLL, CHAIRMAN & CEO, TOLL BROTHERS: From our own perspective, saw this weekend stronger initial deposits than we have seen in a year. So that's too short a period. Of course we can't rely on one weekend to indicate that we've hit the bottom and that the good times are on their way back to us. But it's a lot better than the alternative.
GHARIB: Mr. Toll, do you think that that's because of all of these government programs that have been put out there to boost the housing sector like tax incentives for first time buyers, Fed actions to bring mortgage rates down? Is that what's playing out in the markets?
TOLL: I think it is. What has happened it seems is that Obama and Geithner and Bernanke have called the bottom. They have said in effect to the public, if you don't go out and buy a new home now you are crazy. And I think it's that kind of marketing, that kind of concerted government action that has brought the buyers back into the market.
GHARIB: But from the people that I'm talking to I hear there's still a lot of money on the sidelines and buyers are waiting to see if prices are going to go lower. Do you see prices continuing to fall or are they normalizing?
TOLL: I think that you've pretty much got the bottom in terms of pricing. From a new home perspective, you can only go so low until you're giving your lot away for less than it's worth in which case you're better advised to just sit on the lot, pay your taxes, carry your ground if you've got the money and we have thank goodness and wait for a better day.
GHARIB: What is Toll Brothers doing though to entice people to buy? Are you discounting, giving special deals, giving special incentives?
TOLL: Yes, we give special incentives. We run a different program every two or three weeks per community, kitchen and bath expo, extended delivery if you've got a problem with selling your own home, mortgage rates that were at 3.99 for a while, but now that the market has come in at about 4 3/4's we think that that's good enough. And in fact our market as I said earlier was better this past weekend than it's been in a year.
GHARIB: On the flip side, what adjustments is Toll Brothers making to help out buyers who have signed contracts but maybe have run into financial problems. They've lost their job or they have some other financial issue. What adjustments are you making to help them out?
TOLL: We're doing everything we can to bring buyers to the table who have deposited on homes, who we believed in, because once we have the deposit and the contract, we start building the home. And I think our average price is about $600,000 now. We'd much rather trade the home in for the $600,000 than we would to grab a deposit. So we do everything we can to work with the buyer to make the deal go through, including but not limited to at the last minute restructuring the deal if we can, taking back a second in order to make it more easy for the client to become a buyer/homeowner.
GHARIB: When the recovery comes whenever that is, will Toll Brothers' approach to the housing business be different or new? What's the takeaway lesson from this historic downturn?
TOLL: The next time around I hope that we're more careful in the land that we commit to and the expansion that we commit to. The problem is one never knows whether you're just approaching the cliff or whether there's a tall mountain in front of you that if you keep on Climbing, you'll have the best view of your life.
GHARIB: Mr. Toll, thank you so much for your time, enjoyed talking to you. TOLL: You're very welcome.
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