Luxury Builder Worried About Subprime Contagion

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Coupla headlines jump out in this report from luxury homebuilder Toll Brothers on the continued weakness in the new home market.

--The outlook has worsened in the past two months but the company is still making money.
--CEO Robert Toll says, ‘Twenty months into this housing downturn, we continue to face difficult conditions in most of our markets.’ Twenty months?
--Toll appears to endorse The Bill Gross Plankton Theory of Housing -- that weakness at the bottom can work its way up the price ladder. ‘We believe that fewer than 2% of our buyers use sub-prime loans. However, the impact of stricter lending standards arising from problems in the sub-prime market is negatively affecting affordability at lower price points. This, in turn, can impact the entire ‘housing food chain’, including some of our potential customers’ ability to sell their existing homes.’

Pictured: The Toll Brother’s Waterford model.