Housing Industry Exec Optimistic

A strong economy will spark a housing market rebound after excess inventory from speculators is shaken out, perhaps very soon, the chief executive of the nation’s largest luxury home builder said Thursday.

At a meeting with analysts in New York, Robert Toll of Toll Bros. Inc. said pent-up demand would drive the housing market after the current housing slowdown passes. Demand will be driven by buyers who are biding their time waiting for better incentives or lower prices.

Once they see growth in home prices start to accelerate again, they will come back, he said.

“The next great story is pent-up demand,” he said. “Once the natural balance is restored in the market, you’re going to see prices go up again. Prices are going to go up quite a bit.”

Toll based his optimism on the strength of the economy, but cautioned that it was contingent on the Federal Reserve keeping it healthy.

“Right now we’ve got a pretty great economy out there,” he said. “Jobs are growing every day. Sooner or later, it will back itself into homes.”

Toll also said mortgage rates -- currently an average 6.67% for a 30-year fixed-rate home loan -- aren’t a major factor in the housing slowdown, since they still hover near four-decade lows.

“We did business [when mortgage rates were at 8.5%] and it was fabulous,” he said. “Now it’s 6.5.”

Toll believes the second-home market will stay particularly robust as baby boomers look to move to Sun Belt states or urban centers with rich culture and entertainment.

Horsham, Pa.-based Toll Bros. said it could more than double sales to 20,000 homes a year by boosting its market share to 3% in cities where it already has a presence.

The company said it holds a 1.4% share in the Midwest and 1.1% in the West. In the Northeast, market share is 5.6%. In the South, it’s 3.3%.

But even as Toll Bros. expands, its stock price has been pummeled.

Shares of other home builders have been hammered as well as the housing slowdown took hold.

The company said the low valuation could spark acquisitions in the industry.

When asked by an analyst whether the home builder would consider a buyout bid from management, Toll said he would. While management could have done it when shares were lower, he said they didn’t because it meant they would have to take on considerable debt, which is risky.

“We haven’t done it when we had greater opportunity,” he said.

“That doesn’t mean we wouldn’t do it now.”