Toll Brothers FY 3Q15 Earnings Call Notes

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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.”