Toll Brothers FY 2Q17 Earnings Call Notes

Douglas Yearley – CEO

Best spring selling season in 10 years

“Solid and improving demand and the financial strength of our affluent buyer base are driving our growth. This was the best spring selling season we have had in over 10 years. The number of contracts in fiscal year 2017 second quarter was the highest since 2005’s third quarter and the number of contracts per community was the highest since 2006’s second quarter.”

West is great in all regards

“Bob, the West is great in all regards. We had significant order growth in Arizona, Colorado, Idaho of course is new to us and doing very well. Las Vegas, Reno, the only place that was down in the West and it’s strictly mix because we love the market was Seattle and we have more opening coming, so we’ll make up for that, but the West was absolutely fabulous in all regard. We’ve course now report California independently, which is as west as we get and I have the same comments for all of California as I just made for our Western region. It’s just fabulous.”

Raising price faster than cost but not by a huge amount

“Mike, this Doug. It’s certainly better in some reasons and it’s worse in others. California and Seattle have had — we’ve had the ability to raise prices the most. For the quarter, we on average nationwide we raised prices a little more than $5,000 per home. We had cost go up about $2,500 per home. So, we continue on a national level on average to outpace cost increases, but not by a whole lot, by $2500. But when I focus on those areas that have been strongest on you look to where we sold the most homes this quarter and that’s Southern Cal, Northern Cal, Seattle, Northern Virginia, New Jersey, Las Vegas, Reno and Michigan.”

We don’t see an overheated market in CA

“We don’t see overheated market. We don’t see investors. We certainly all know mortgage money is not easy. The percentage of foreign buyers has stayed stable and they have been quite easily been able to finance their homes or get cash into us to purchase their homes with truly no issues. I’ve checked with our mortgage company. I’ve checked with our California teams and it has been business as usual for some time now with that foreign buyer. ”

Bob Toll – Executive Chairman

Housing starts still half of previous peak

“Thanks Marty. We believe our strong results are being supported by the release of pent-up. Single family housing starts rose to 835,000 in April. However, that is still just half the previous peak of 1.72 million in 2005. Many factors are bringing buyers off the fence right now. These include low interest rates, urgency created by the limited supply of resale and new homes and improving personal balance sheets and credit profiles. Our luxury buyers are further benefiting from a solid employment picture, strong consumer confidence, a robust stock market and increasing equity in their existing homes.”

Toll Brothers 4Q16 Earnings Call Notes

Douglas C. Yearley

California continues to be hot

“California continues to be hot. At Baker Ranch in Lake Forrest in the LA suburbs, we signed 66 agreements in the first quarter, double last year’s first quarter total. And we have taken 30 additional deposits in the last three weeks, all at an average price of over $1.2 million.”‘

Strong stock market helping to increase demand for our homes

“Home buyers are beginning to realize gains on the sales of their homes, which gives them the confidence, flexibility and down payment money to trade up into one of our homes. This increased home equity, gains in the stock market, the prospects of potentially lower tax rates and less sensitivity towards mortgage interest rates, due to generally larger down payments and stronger personal balance sheets, seems to be contributing to increased demand for our homes.’

Hot is the right word for CA

“With respect to California, yes, hot is the right word to describe it. Our numbers in Southern Cal doubled. Our sales doubled in the quarter. I referenced Baker Ranch, which is a flagship community of ours in Orange County. Northern Cal was only flat because of a lack of inventory. We have a number of communities opening in the second half of 2017, but both Northern and Southern Coastal California, where we are located, are hot.”

Buyers not levering up

“we’re also very comfortable with the general luxury market. Our buyers are well-positioned for all the reasons we gave in the prepared comments. 20% are all cash. Those that get a mortgage only lever up 70% LTV. They put 30% down. The resale market is firming up. They have equity in their homes. The stock market is roaring. They have money in the markets. Tax rates may be coming down. And it’s a very fragmented business that we tend to dominate, and the competition is small. It’s local. It doesn’t have our horsepower. It can’t buy the land the way we do. Doesn’t have our balance sheet. It doesn’t have our brand. It doesn’t do it the way we do it.”

Millenials buying their first homes later than boomers

“The number one reason for now is millennials. This is a generation that is approaching the size of the boomers. And they will be buying their first home. Many of them a little bit later in life than the boomers did, so they will be wealthier, more established. And we think there’s a huge opportunity that their first home can be the 3 Series BMW, brought to you by Toll Brothers. And so that is what, in the last few years, drove the initial thought and the strategy. ”

Most value of a builder is its land

“Remember that most value of a builder is its land. So we always have to weigh, do we want to buy a builder that has some really good land, some above average land, and then maybe some average or below average land and blend that together in a market we’re already in where we don’t need the brand and the relationship with contractors and somebody to explain the architecture to us and how to buy land, et cetera? And we have to then weigh whether it’s worth it to buy a portfolio that is a blend of different quality land with just chasing the best land deal in the market?”

Mortgage buyers putting 30% down

“Megan, we have not. We still have 20% all cash buyers. A lot of those come out of the Active Adult category. And those that get a mortgage are still on average putting 30% down and only mortgaging 70%. Rates today, the jumbo is about a quarter point below a conforming Fannie Freddie loan. It’s about a 4.125% loan and a conforming is about 4.375%. And as you know, we have more jumbo buyers than the other builders. So the mortgage side of our business is good and the buyers are really doing nothing different than they had in the past.”

Bob Toll

Housing outlook remains favorable

“With home price appreciation strengthening personal balance sheets, the Dow Jones Industrial Average surpassing 20,000 for the first time, low unemployment, we believe the housing outlook for 2017 remains favorable. The pent up demand of the past seven years may be starting to release, bringing more buyers into the market, especially in the move-up segment where rising home values are giving buyers more equity when they sell their homes in order to move up.”

Millenials forming families

“The leading edge of the millennial generation has begun to form families, have children and buy homes. The maturing baby boomers continue to demonstrate strong demand for our Active Adult homes. With supplies of new and existing homes still tight, we believe that a rise in demand could push home prices higher.’

Toll Brothers 4Q16 Earnings Call Notes

Toll Brothers’ (TOL) CEO Douglas Yearley on Q4 2016 Results

Starting to benefit from millenial buyers

“With the millennial generation now entering their thirties and forming families, we are starting to benefit from the desire for home ownership from the affluent leading edge of this huge demographic wave. In fiscal year 2016, approximately 22% of our settlements included one primary buyer 35 years of age or under. We currently are courting these customers with our core suburban homes, urban condos and rental apartment properties. ”

Markets that are softer

“So, I gave in my statements the markets that are really strong. I don’t need to repeat those. There were many out west, but there are also many in the east. The markets right now that are softer for us would be Minneapolis, we have two communities; Illinois, which we talked about for a year is it’s just not returning as we thought it would; Huston, which we talked about many times and it’s at the higher price point, yes that is definitely softer and it is the location where we will have our first launch of T|Select; Connecticut, where we haven’t bought land in years and we have shrunk in size and it has its own issues, not just 5 million in Greenwich [ph] but throughout the state; and then Maryland, which has also been softer a while and we have talked about it, and we’re doing really well in Northern Virginia but we have struggled in Maryland. So that is the bucket of locations where we build that we have seen softness and we have redirected our Company into other areas, as you can see through the growth out west and in other places to account for it.”

Toll Brothers FY 3Q16 Earnings Call Notes

Toll Brothers’ (TOL) CEO Douglas Yearley on Q3 2016 Results

Just not seeing weakness in luxury new home market

” While there has been a lot of discussion about weakness in the luxury new home market, we just aren’t seeing it based on this quarters contract growth across all of our regions and our strong deposit start in fiscal year 2016 fourth quarter. Our contract growth this quarter was among the best in the industry. It appears that buyers in the luxury market continue to be drawn to our great brand name and nationwide reputation. ”

6th most admired company in the country

” This February we were number 6, among global brands in the quality of our products, services offered according to Fortune Magazine’s survey of the World’s Most Admired Company. The only companies in the world that ranked above us were Apple, Walt Disney, Amazon, Alphabet, and Nordstrom.””

No change in appetite from foreign buyers

“We have not seen a change in the appetite of foreign buyers. This has remained about the same at about 3% to 4% of our total contracts nationwide with the greatest concentration being about 15% to 20% in California, 10% to 15% in New York City, and 5% to 10% in Seattle. These percentages have not changed materially over the past few years.

Saw sequential improvement throughout the quarter

“We saw a sequential improvement in sales throughout the entire quarter. July was better than June and June was better than May.”

Continue to be very bullish about the West

“We continue to be opportunistic with land buys. We’re looking all over the country. This past quarter much of the land we bought, most of the land we bought was in California where we had some very good opportunities to buy at various price points and in various locations. So we continue to be very bullish about the West

If rates go up it’s something we’ll deal with

“In terms of rates going up it is not something we can control. What we do offer is a year rate lock on jumbo loans so people want to walk into very close to today’s rate they can do that with a market rate float down. If rates go up we will deal with it. I don’t see any terrific increase in rates coming but right now I would say the market is strong”

Toll Brothers 2Q16 Earnings Call Notes

Toll Brothers’ (TOL) CEO Douglas Yearley on Q2 2016 Results

Drop in California, but we believe the market remains strong

“Thank you, Marty. We believe the California market is still strong. Both Southern and Northern California were among our Top 5 Markets in contracts per community this quarter. Our drop in California contracts reflects a temporary lack of inventory, strategic price increases we have implemented to meter out sales in communities with large, and the lingering impact on our Porter Ranch community of a leak from a nearby natural gas storage facility, which appears to be heading towards a positive resolution.”

No significant change in foreign buyer appetite

“We have not seen any significant change in the appetite of foreign buyers in California or in our New York City high rise projects. The two Markets where they are most prevalent. Foreign buyers still represent about 15% to 20% of our California buyers and 10% to 15% of our New York City buyers.”

Dallas is still a strong market along with rest of the west

“Looking around rest of the country, we saw strength across much of the rest of the West, including Denver, Seattle, Reno, and Las Vegas. Dallas is still a strong market. Opening communities and keeping up with demand was the biggest challenge in our Dallas division this past quarter. ”

We don’t agree that there’s weakness at the high end

“We don’t agree that there’s weakness at the high end. I think our results and our commentary confirms and supports that. Every market runs differently as we always talk about. California I think we’ve done a very good job of explaining why numbers are down but why the market is still very strong for us. The community I mentioned Hidden Canyon which has $800,000 of price increases over the last year continues to have a waiting list, so I would not accept the thesis that the high end has a bid ask issue. We don’t have buyers coming in that are looking to negotiate. We are very comfortable with the business. There are plenty of buyers and we love the luxury end.”

Haven’t had to buy land as early this cycle

“I think what we’ve seen in this recovery is a slower steadier pace of recovery which results in a situation where you don’t have to buy as much land as soon in the cycle and you can in many respects kind of self-fund through operations future land purchases. ”

Bob Toll

Interest rates remain low

“We continue to believe that the drivers are in place to sustain the current housing market slow but steady growth. Interest rates remain low, job picture continues to improve, home equity values are rising, supply remains constrained and the industry is still not building enough homes to meet the demand that current demographics imply are needed.”

Millennial appetite for home ownership is consistent with past generations

“As millennials mature, studies indicate that their appetite for home ownership is consistent with past generations, which is of course encouraging for our industry.”

one potential exception to weakness at the high end is in NYC

“I think the one potential exception to that, Doug might be in the high end in New York City. And in New York…I took the opportunity to mention that in the New York market, we have four buildings, five buildings where the average price of units still to be sold is less than $3 million. I’m looking at averages that are a million, a million four, a million eight, a million nine, and then one building with three and a half million and we do have the building at 1110 Park where we have four units left that is the high end market but the rest of our product in New York skews to the mass market, middle market rather than the ultra high end.

Toll Brothers 1Q16 Earnings Call Notes

Douglas C. Yearley, Jr. – Chief Executive Officer and Director

Customers continue to demonstrate a healthy appetite for luxury homes

“Looking around the country, our business remains solid as customers continue to demonstrate a healthy appetite for luxury homes.”

Drop in first quarter contracts not indicative of how we see current market

“In California, the drop in our first quarter contracts was not indicative of how we see the current market. While contracts were flat in dollars, and down 28% in units, both Northern and Southern California remained healthy.”

Dallas healthy but Houston challenging

“In Dallas, our per community activity was up, but our community count was down due to some sellouts. We continue to view this market as healthy. Houston, which is about 2% of our total agreement, and also our balance sheet, had a challenging first quarter. Contracts were down 26% in units, 22 this year versus 30 last year. The lower end is more active”

Continuing to grow community count

“While global concerns have weighed on economic outlooks, we remain committed to growing our community count. We continue to evaluate new land deals, although with a slightly sharper pencil at the moment, given the global turmoil. ”

Any softness in Northern California numbers is not indicative of weakness

“With respect to California, Northern California is very strong. The numbers don’t reflect the quality of the markets and our business. We have been aggressive in raising price, as we mentioned. Our backlog is up tremendously. We’ve also had a few communities that are nearing sellout so they have less inventory and therefore we have less to offer at the moment. That will change over time. But I would not suggest in any way that Northern California is not doing as well as Southern Cal. I think those numbers are again not reflective of what we’re seeing in the market.”

Labor market shortage and larger houses increases time to build and cost

“There continues to be labor issues out in the field. Those issues appear to be moderating as the cost increases of labor are also moderating. We were up $1,500 this quarter over last quarter in building costs. And about 75% of that was labor. The balance, 25%, was very small increases in some materials. Our houses are taking a little bit longer to build. Two weeks longer, three weeks longer. It’s a reflection of the tight labor market that the entire industry has been experiencing over the past year or two. And it’s a reflection to some extent, of what you see happening with our average price point, which means our houses are getting bigger. There is more options going into the houses, and they’re a bit more complicated to build.”

We’re encouraged by the quantity and quality of traffic early in the spring season

“I think we’re very encouraged by the increase in traffic, in numbers and even more importantly in quality, which, of course, is the comments we get back from the sales teams every week when they grade the quality. So it doesn’t appear that people are visiting more often. They’re being more deliberate. It’s early in the spring season, we’re about three weeks in. And so we’re encouraged by the traffic numbers and the quality of that traffic. But I don’t think the buyer mentality right now is shifting.”

Robert I. Toll – Executive Chairman

Stock market pricing in steep decline in the economy but we are seeing signs of strength

“Thanks, Doug. The stock market seems to be pricing in a steep decline in the economy, and along with it, our sector. We on the other hand, are seeing signs that reflects strength and positive momentum in our business based on six consecutive quarters of year-over-year contract growth in both units and dollars.”

Toll Brothers 4Q15 Earnings Call Notes

Toll Brothers’ (TOL) CEO Douglas Yearley on Q4 2015 Results

Still a ways to go to reach 1.6m housing starts

“With nationwide housing starts signaling about 1.1 million in 2015, the industry still has a lot of runway ahead to reach even its average annual production volumes of 1.6 million units per year since 1970.”

Homeowner equity is now approaching pre-downturn levels

“According to the Federal Reserve, homeowner equity has doubled since 2011, the start of the housing recovery, and is now approaching pre-downturn levels with the economy still improving and home equity growing, we believe our future should be bright.”

Foreign buyers went up in 4Q

“So California, our foreign national buyers actually went up in the fourth quarter. So we apparently are bucking the trend. You’re hearing of others. ”

Houston is slower no question

“In terms of Texas, Houston is slower, no question about it. It’s 2% to 3% of our business, very small part of our action. We do have several master plan communities where we not only build homes but sell lots to others.”

Continue to see tremendous demand in Northern Cal

“if tech was to slow, I think we have the land in the right locations and we will be fine. I don’t see that happening. We have continued through this week to see tremendous demand and have significant pricing power and I’m very comfortable with how we positioned Northern Cal.”

Top markets in the west, that’s where we’re spending on land

“I mentioned the top markets for us are the west, so you’ll see land spend in Seattle and you’ll see it in Nevada and I’m hopeful in Denver and Dallas and Northern Virginia and rounded up. The rest will be I think distributed around the country in the markets that we continue to be excited by.”

Toll Brothers FY 3Q15 Earnings Call Notes

Housing recovery is built on a solid foundation

“This housing recovery appears to be built on a very solid foundation. We believe that the slow but steady acceleration we and the industry are experiencing bodes well for the long-term health of the housing market based on increasing household formations, pent-up demand and the current industry-wide production that is still well below historic norms. With our great land positions, well-established brand, broad product and geographic diversification, and solid financial footing, we are very optimistic about the future.”

Slight difference in mix led to lower than anticipated ASP

” Our Q3 unit delivery total was consistent with our expectations, but a slight difference in mix resulted in a lower average delivered price than anticipated. ”

Demographics support housing market

“Population continues to grow. If the supply of homes in the market remains well below historic norms, as does new home production. An improving employment landscape, three consecutive quarters of accelerating household formations, pent-up demand, increasing rents and still attractive affordability are supporting the for-sale housing market’s steady recovery.”

Strong job picture should lead to rising home prices

“As the job picture continues to improve, greater demand should lead to rising home prices, which we believe should encourage more people to sell their existing homes and move up or add a second home. Based on these and other factors, we believe the housing market remains on an upward trend and has considerable room to grow.”

Too early to tell if currencies are having any impact on foreign buyers

“there really hasn’t been much of a change. In Northern California, 10% of our buyers are foreign nationals. I can’t give you the breakdown as to what nationality, but 10%, and that’s been a consistent number over the last couple of years. Southern Cal, it’s also about 10%. That is down a little bit from when it was around 15% or even up as high as 20% in 2014. In New York City, we run about 13% foreign nationals. And that number, again, has been fairly consistent. What’s going on lately, it’s too early to tell. It’s too early to read anything into it over the last couple of weeks. We’re obviously keeping a very close eye on it, but most of our international buyers are Asian-American, been here for generations, not impacted by their home country economy. And that’s certainly what’s driving the California market, Seattle, and many markets for us. And that buyer seems quite confident and ready and able to buy. But we’re obviously, as everyone is, keeping a very close eye on it. But right now it’s just too early to tell you much more than that.”

Pricing power is very strong in California

“Right now the markets out there continue to be very strong. We continue to have terrific pricing power. We manage pricing weekly. We’ll open a new phase and there will be a line of people at the door when we open at 10:00 AM, and we’re able to raise price once again in many of our locations in Orange County and up in the East Bay and South Bay of San Francisco. We’re continuing to experience that type of overwhelming demand, and we move the price.”

We don’t think we’re running off a cliff

“We’re trying to be cautious because we’re always aware of running off the cliff. So far, we don’t see a cliff, we just see nice sunny skies and level ground.”

Not seeing any issues with buyers qualifying for loans

“Our buyers remain to be strong. We have on the margin, a few people that struggle to qualify, but overall, we’re able to get the vast majority of our people into a mortgage if they want one. We’re not seeing any issue at all, really, on a macro sense with qualifying for loans.”

The jumbo rate is below the conforming rate

“Actually, today, the jumbo rate is below the conforming rate, which is pretty astounding. We’re seeing very strong demand for jumbo.”

Insurance companies will be directly underwriting mortgages!

“We believe we’re going to introduce a, for the first time in our history, direct sales to a major insurance company, which will be huge. So – and that also, by the way, is going to open up financing for foreign nationals but to a greater degree than we have today. So, I don’t see any issues at the moment in terms of availability or liquidity in either the conforming or the jumbo market.”

Land market is healthy

“Deal flow is everywhere. Competition is the same, those with money, the big builders and the wealthy investors. As I’ve said many times, we’re opportunistic…It continues to be a healthy land market. It’s a competitive market, and we are, we think, very good at it, and very selective and careful on our underwriting.”

Toll Brothers FY 2Q15 Earnings Call Notes

Average price of signed contracts is up a lot y/y

“The average price of homes delivered was $713,000 compared to $706,000 in 2014 second quarter. Net signed contracts of $1.6 billion and 1,931 units rose 25% in dollars and 10% in units compared to fiscal year 2014 second quarter. The average price of net signed contracts was $826,000, compared to $729,000 in 2014 second quarter. This significant increase reflects our greater concentration in California and some high priced City Living products.”

California is strong

“We’re pleased with the way fiscal year 2015 is unfolding. California demand remains very strong. Our communities there accounted for roughly 30% of the value of signed contracts this past quarter as we enjoyed pricing power across both Northern and Southern California.’

Texas doing well

“Texas which for Toll is primarily Dallas and Houston, continues to perform well. Over the past few weeks more than 1500 visitors have showed up a grand opening events at our Sienna Plantation master plan community on the South side of Houston, where we and other builders will be selling homes.”

Pent up demand is releasing

“We have seen a number of strong community openings in the past few months elsewhere in the country. Pent-up demand is releasing in many markets.”

Housing market is on firm footing

“The economy and housing continue on parallel pace of recovery. It appears that the housing market is on firm footing and heading in the right direction. As pent-up demand is released, we envision a solid recovery for housing.’

Now weakness in Houston

“we keep a close eye on it as we’ve talked about, we’re constantly asking sales and our management team down there what they’re seeing and the market is holding on, we’re keeping our fingers crossed. Right now it’s okay, and we love our positioning.”

Mortgage rates are not going to have a huge impact on the market at this point

I don’t think the increase in mortgage rates is truly meaningful at this point. It is low as 3.5, 3.75 now you’re at 3.70. I don’t think that is going to determine the market going one way or the other.”

Buyers don’t talk about rates. They’ve been here for so long

“We’ve always said that if the rates pick up slowly because of great economic news, which is why they should pick up, we’ll take it all day long, and right now buyers don’t talk about rates, it’s not an issue, they have been sitting at this number for so long, so we don’t see it as an issue right now for our business.’

Less concern about reselling an existing home

“We don’t hear as much about the concern of selling the existing home as we heard few years ago. To Bob stats, the stronger the resale market becomes the higher price of the houses become, the more comfortable people are in moving up and that is evolving.’

Encouraged by demand all over the country

“We are encouraged by the demand we’re seeing released around different pockets of the country. And hopefully that continues and we will also contribute to margin expansion around the rest of the country in 2016, but we’ll probably have more on that more to say on that later this year.’

Have been able to be more selective with land acquisitions

“I wouldn’t read too much into the land levels coming down it’s just lately. We’ve bought a little bit less land and we’re in such great position with the land holdings we have, that we can afford to be very selective and we are.’

“With the recovery being a bit more gradual than other recoveries have been, the need to get land is not been a significant.”

Toll Brothers FY 1Q15 Earnings Call Notes

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Delivered 1091 homes, signed contracts on 1063 units

“Revenues of $853 million and home building deliveries of 1,091 units rose 33% in dollars and 18% in units compared to FY ‘14s first quarter totals. The average price of homes delivered was $782,000 compared to $694,000 in 2014’s first quarter. Net signed contracts of $873 million and 1,063 units rose 24% in dollars and 16% in units compared to FY ’14’s first quarter. The average price of net signed contracts was $821,000, compared to $766,000 in 2014’s first quarter.”

Backlog of 3651 units

“Backlog of $2.74 billion and 3,651 units rose 2% in dollars and was basically even in units compared to FY ’14’s first quarter end backlog.”

258 selling communities

‘ We ended the quarter with 258 selling communities, compared to 238 one year ago.”

Momentum building into spring selling season

“Momentum continues to build as we begin the spring selling season. In our first quarter, we achieved 24% growth in the dollar value of signed contracts. Since the start of the second quarter which began on February 1, contracts in units are up 13%. We continue to benefit from our ongoing geographic diversification strategy.”

Houston is strong

“Since much attention has focused on Houston, let me share a couple of facts. Houston has remained solid with backlog cancellation rates well below the company average and contracts per community up compared to last year. Of roughly 150 Houston homes in backlog at fiscal year-end, we have had just one cancellation.’

NYC, Socal and Norcal are top three markets

“New York is still good. It is second or third to Northern and Southern Cal in terms of the quality of our markets.”

No story to tell on weather

“how quickly everybody forgets how rough last winter was in many regions of the country. It was very cold and very snowy. Again it’s cold this year. It’s a little less snowy, unless you’re up in New England. We’ve looked at weather a bit, but I don’t think there is a story to tell there.”

Sometimes people actually come out more in bad weather

“Story to tell is that usually, if you’ve got good land, you got good offering and you’re hot, bad weather brings them out for some strange reason.”

“Well yes, excluding Boston. It’s amazing the power they find in order to get there. Even in deep snow, shovel the walk up to your front door, you can sell houses.”

“Massachusetts this past week, we have about 8 communities, took 13 deposits.”

People are confident that they can sell their existing homes

“We’re not hearing of issues our buyers have with selling their existing home. In fact, as this recovery strengthens, we’re hearing better news that they’re more confident they can sell their home and that’s why our traffic is up and they’re out in the market anticipating the ability to sell their home later in the spring.”

Custom designed homes not spec

“there is no change in the buying style or philosophy of our buyers. Their preference is always to custom design the home and make it one of a kind, with every addition, every finish, every upgrade that suits their lifestyle and it’s personal to them, that is always the desire. But like I say in certain markets on certain occasions, specs are needed and we think we have the right number in those locations.”

How we’re thinking about land

“We’re thinking about land as we’ve always thought about it which is to be very opportunistic, take advantage of our balance sheet and buy what we think is the best land at the corner of Main and Main to set up the company for many years to come and that’s how we’re going about it.”‘

We certainly feel better than we did in November/December

“we’re now three to four weeks into a spring selling season and there are more buyers in the market. We talked about California and our strategy and how we’re bringing on the Toll homes and how well that’s working. But where we sit today, we certainly feel better and have more pricing power than we had in November and December.”

Just because you’re selling a higher priced product doesn’t necessarily mean profitability goes up too

“I think we do continue to see some rising inputs but I think what we’ve really seen is our mix shift to California and a higher priced product out there which has driven the ASP or ADP for the year to be up. Profitability doesn’t necessarily go up just because you’re in a higher priced geography.”

Labor is still short but getting better

“Labor is still short but it’s getting better as we get further into this cycle. Most markets we have very few if any issues. California’s an example where we’re selling a whole bunch of homes, building backlogs and we’re still able to deliver homes in six, seven months. So it’s easing and certainly feels a lot better.’

Smaller builders are capital constrained

“They’re still constrained. The small guys have not come back into the business. They’re unable so far, at least in our markets, to find the capital to compete on the land deals that we go after. We’ve always loved our position because we tend not to compete against the large public builders who tend to look at land and locations that supports lower-priced housing. The land market is about the same as it’s been over the last of couple years. We’re very selective. We’re very diligent and we continue to buy land.”