A shrinking pool of buyers

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Good morning. News item from Bloomberg: ‘Toll Brothers Inc., the largest U.S. luxury homebuilder, said third-quarter profit fell 85% as the deepening housing slump cut sales, increased cancellations and forced the company to write down property.’

Here’s what caught our eye in the company’s press release: ‘... nearly two years into the current housing slowdown’... ‘... tightening credit standards will likely shrink the pool of potential home buyers: Mortgage market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes.’

Our take: Toll Brothers says the slump is now nearly two years old, and demand for new houses is likely to drop. This is not the same as the general real estate industry analysis, which holds that there are a lot of buyers on the sidelines, waiting for prices to fall. This is worse for sellers: Toll Brothers is saying that the rules have changed -- ‘tightening credit’ -- and some potential buyers can’t come off the sidelines even if they want to. Big difference.

Your thoughts? Comments? Insights?