Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings January 2008

Today, the National Association of Home Builders (NAHB) released their Housing Market Index (HMI) showing continued evidence that the new home market is experiencing a prolonged recession.

The release came along with some guarded, yet optimistic, outlook from Chief Economist David Seiders who has continues to look for an “upswing” in building activity in the second half of 2008.

“The HMI has held within a narrow two-point range for the past five months, indicating that builder views of housing market conditions essentially haven’t changed over that time, … Builders are anticipating a time when market conditions will support an upswing in building activity – most likely in the second half of 2008.”

With this month’s release the NAHB has apparently discontinued (I’m looking into it… I’ll post what I find out) publishing the individual builder respondent rating (“good”, “fair” and “poor”) data series that are the components of the overall composite HMI series, so I have reworked my charts to simply show the four main composites; the HMI index, the “present conditions” index, the “future conditions” index and the “buyer traffic” index.

It’s important to understand that each component of the NAHB housing market index is now sitting at or near the worst levels ever seen in the over 20 years the data has been being compiled.

This suggests that the current severe contraction has surpassed all other events seen in the last 22 years and is now firmly in uncharted territory.

Constructing Capitulation: October 2007

Looking back at October’s results (released throughout November) it’s now unequivocally obvious that the nation’s housing markets, having fully transcended the mania that existed primarily in the first half of the decade and now, in its aftermath, after being dramatically and irreparably impaired by the unwinding of the resultant mortgage-credit debacle, are now hurtling headlong into a dramatic new leg down.

While housing demand continues to slow and inventories swell far beyond historic levels, the credit markets that had provided such a plentiful supply of cheap Jumbo mortgages remains non-existent.

Homebuilders have now clearly accepted the severity of the recession and are re-pricing accordingly but, as is typical, the existing home sellers remain behind the curve.

Additionally, there are tentative signs that the commercial real estate market (CRE) is now beginning to feel the effects of the ongoing credit debacle and consumption pullback resulting in a sharp pullback in prices and swelling inventory of vacant space.

Finally, although the second preliminary installment of the Q3 2007 GDP showed strong results, most notably coming from exports, the mainstay consumer and CEO confidence surveys are now clearly showing significant trepidation particularly with respect to future prospects for the strength of the economy.

The Pending Home Sales Report, the most leading existing home sales indicator, again showing truly stark and horrendous continuation of the historic decline to residential housing on a year-over-year basis, both nationally and in every region.

We are now firmly heading down the second slope of the pullback in residential housing demand with the Northeast, Midwest, West and the National regions having now fallen over 30% BELOW the seasonally adjusted home sales activity recorded in 2001, the first year Pending Home Sales were tracked.


The National Association of Realtors (NAR) released their ninth consecutive downward revision to their annual home sales forecast for 2007 putting the current outlook far below the “rose colored” initial predictions from the start of the year.

NAR’s Existing Home Sales Report showing perfectly clearly, that demand for residential real estate, for both single family and condos, has now taken a new and substantial leg down uniformly across the nation’s housing markets likely as a direct result of the momentous and ongoing structural changes in the credit-mortgage markets.

Furthermore, the latest quarterly results for existing home sales shows that, on a year-over-year basis, home sales are now falling in every state except for Vermont and North Dakota (see chart below and click for larger version and note that NH and Idaho don’t report sales data) and even those states sales growth are anemic.



Homebuilder confidence is now sitting AT OR BELOW the worst levels ever seen in the over 20 years the data has been being compiled.

This suggests that the current severe correction has surpassed all other events seen in the last 22 years and is now firmly in uncharted territory.

The Census Department’s New Residential Construction Report firmly indicates a new leg down in the decline for residential construction showing substantial declines on a year-over-year and month-to-month basis to single family permits both nationally and across every region.

The Census Department’s New Residential Home Sales Report for October that again confirmed the hideous falloff in demand for new residential homes both nationally and in every region as well as reporting significant downward revisions to July, August and September’s results.

As with prior months, home sales and median prices are still declining significantly, with the national measure of sales dropping a truly ugly 23.5% and the median selling price declining a whopping 13.02% as compared to October 2006.

The September 2007 results of the S&P/Case-Shiller home price indices continued to show significant weakness for the nation’s housing markets with 13 of the 20 metro areas tracked reporting year-over-year declines and now ALL metro areas showing declines from their respective peaks.

Topping the list of peak decliners are Detroit at -12.77%, Tampa at -11.74%, Miami at -11.13%, San Diego at -10.99%, Phoenix at -9.74%, Las Vegas at -9.08% and Washington DC at -8.92%.



The Office of Federal Housing Enterprise Oversight (OFHEO) released their Q3 2007 home price indices showing continued deceleration of home price appreciation in most regions as well as a broadening of outright declines now including 23 states declining from their respective peaks and 11 states declining on a year-over-year basis.

Topping the list of peak decliners by state is Michigan at -9.22%, California at -8.52%, Nevada at -6.43%, Rhode Island at -5.45%, Massachusetts at -5.14%, Florida at -4.81% and New Hampshire at -2.22%.

Topping the list of year-over-year decliners by state is California at -7.24%, Michigan at -7.07%, Nevada at -6.43%, Florida at -4.56%, Rhode Island at -3.16% and Massachusetts at -3.01%.


The housing weakness still appears to be contributing to a pullback in the retail sales of the most discretionary goods although I will continue to revise the procedures for determining this correlation later this month.

Countrywide Financial (NYSE:CFC) continues to register tremendous borrower stress as delinquencies and foreclosures are continuing to remain at troubling levels with delinquencies climbing 32.96% and foreclosures continuing to soar over 112% since October of 2006.

The latest release of the Reuters/University of Michigan Survey of Consumers showed in unequivocal terms that the US consumer is feeling the burn from declining home values, increased fuel costs and a general uncertainty about the future of the economy.

The Index of Consumer Sentiment fell 17.37% as compared to November 2006 mostly as a result of consumers’ expectations of future economic prospects.

The Index of Consumer Expectations (a component of the Index of Leading Economic Indicators) fell a whopping 20.43% below the result seen in November 2006.

As for the current circumstances, the Current Economic Conditions Index fell 13.68% as compared to the result seen in November 2006.

The Federal Reserve released their monthly read of industrial production showing a decrease of 0.5% from September and a 1.8% increase since October 2006.

More importantly though, production of “final product” consumer durable goods have been showing some recent weakness, with particularly significant declines coming specifically from home appliances, furniture and carpeting.

There has been growing speculation that the commercial real estate (CRE) markets will inevitably follow the lead of the residential markets down to a recessionary correction.

After having some substantial growth between 2003 and Q2 2007 (particularly during 2005 – 2006), there has been a precipitous 2.5% drop in Q3 2007, a drop that MIT/CRE Director David Geltner sees as non-trivial.

"The fall in our index is the first solid, quantitative evidence that the subprime mortgage debacle, which hit the broader capital markets in August, may be spreading to the commercial property markets."


The preliminary GDP report for Q3 2007 showed an increase in the severity of the drag coming from the decline in residential fixed investment, that is, all investment made to construct or improve new and existing residential structures including multi–family units, with the current quarterly fall-off registering a whopping decline of 19.7% since last quarter while shaving 1.03% from overall GDP.

Finally, the Census Department’s Construction Spending report for September again demonstrated the significant extent to which private residential construction spending is contracting.

With the weakening trend continuing, total residential construction spending fell -16.23% as compared to October 2006 and 27.63% from the peak set in February 2006 while private single family construction spending declined by a grotesque -26.41%.

Hovnanian on Housing

Recently, a host of homebuilders attended the Bank of America 2007 Homebuilders Conference where they made presentations and discussed at length their current state of homebuilding and their outlook for future.

Particularly interesting was the presentation and following Q&A by Ara Hovnanian, CEO of Hovnanian Enterprises (NYSE:HOV), who has been, in general, very straightforward about the nature of the decline and its impact on his business.

The following are some excerpts from his segment.

When asked about the signs he would be look to to indicate a turning point in the decline Hovnanian responded:

“Well clearly, one of the things we are much more focused on then we ever were before is MLS listings in a given market. That is a dynamic that’s changed, we’re tracking it in every market. At the moment, unfortunately, most markets are showing negative signs in terms of the increasing MLS listings and lower monthly sales every month. ”

Asked about the nature of “spec” homes in the industry:

“Well, certainly there are several home builders out there essentially are building specs as a means of liquidating land. In the beginning, I was more concerned because they were building new specs at a rate which was far greater than their sales. However, what we’ve seen now is those that were in that mode are basically building specs to equal their sales. So, if they sell 20 specs, they start 20 more spec, if they sell those 20 they start 20 more. I think what is going to be an important bellwether to look at and is not something that there is easy data to collect, that is the number of improved lots. I think what most of the major homebuilders are interested in doing is liquefying their capital intensive positions and that’s in developed land.”

When asked about projecting future earnings:

“At the forty thousand foot level, I think what I can say is we’re not banking on generating our big cash flows from huge earnings right now. We can’t control that at the moment the market is what it is and frankly as we said earlier, we can barely project out six months let alone all of 08.”

When asked about the quality of their current land holdings:

“Well first of all, at the moment almost any land is too much land because many times the real value to replace it today, if there was trading and there is hardly and trading, but you’ve got to think that you should be able to replace it at some point in the future cheaper. In general, yea there are places where I wish we had less land. Florida for sure, definitely parts of California for sure, but even those markets we’ve got properties that are undervalued and I wish we had more lots in them.”

“We are, in interesting cases, we walked away from a couple of parcels of land that were under option… the land sellers have come back to us, offered us property at realistic valuations after they tried to shop it to other home builders, couldn’t find anyone else willing to pay unrealistic prices and we have re-entered new contracts at substantially lower prices.”

“But the number of opportunities are far far less than our burn rate right now.”

When asked about price reductions in their southern California markets:

“We are, in Riverside County and San Bernardino County definitely having to adjust prices recently, as recent as the last month in that marketplace to keep pace and it is very competitive. As one competitor lowers prices and sucks away all the sales, the other builders then have to react basically it’s becoming little bit of a ratcheting effect. We saw the exact same thing in San Diego.”

Speaking generally on assessing the outlook for the future, Hovnanian suggested:

“The interesting thing about this particular slowdown, and I guess I don’t want to be painted as an optimist because we’re acting quite conservative today. But there is some interesting spread of light out there that’s worth mentioning. The last two major slowdowns we had to deal with, 81 and 91, were very different economic environments. We had a national recession going on in both of those periods that was full on, numerous quarters. We had job losses. Today we pick up the paper and read bad news about homebuilding, back then we were reading about layoffs at every major company imaginable every single day. That was a very challenging environment and if that wasn’t enough we had very high interest rates particularly in 81 but relatively speaking in 91 we had very high rates.

Today, it’s a very interesting time because demographically demand is better. Every actuarialist and demographic scientist is predicting higher household growth. Secondly, the economy is good, a little slower than it was in 05, but still positive 1-2% is the outlook which is not terrible, not job loss but job gains. And three, interest rates are pretty good.

So it’s a more optimistic environment, I think, to turn the corner at some point.

If we could just get through some of this inventory overhang and most importantly, if we can get through the psychological effects that’s really taken over the consumer today.“

Listen to the complete presentation here as well as the presentations by Toll Brothers executives and DR Horton as well.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings June 2007

Yesterday, the National Association of Home Builders (NAHB) released their Housing Market Index (HMI) showing additional evidence that the new home market is experiencing a new leg down in declines.

Measuring builder confidence across six key data points, the builder survey has been a bellwether for the new home market since 1985.

The component measures used to formulate the overall HMI are respondent ratings on “present conditions”, “future conditions” and “buyer traffic” all of which continue to indicating significant current and future weakness as the new home market slumps its way slowly forward, now long separated from an exceptionally disappointing spring selling season.

The following charts show “present conditions”, “future conditions” and “buyer traffic” both smoothed since 1986 and unadjusted since 2005 (click for larger versions).

Keep in mind that for each measure respondents are asked to assign both a “good” and “poor” rating so in each chart you will notice “good” slumping while “poor” is surging.

Gettin’ Down with Toll

Toll Brothers (NYSE:TOL) reported Q2 earnings results last week confirming a $119.7 million of pretax write-downs that served to depress their net income by an astounding 79% as compared to Q2 2006.

Additionally, Toll yet again reduced its expectation for the maximum number of homes delivered for 2007 from 7300 homes last December to 7000 in Q1 now to 6900.

During the conference call, CEO Bob Toll uncharacteristically offered very little optimistic sentiment even offering some skepticism regarding recent Treasury Secretary Paulson’s “market bottom” outlook and the recent up-tick in the Census Department’s New Home Sales.

“I think what that indicates is that most new homebuilders that are large, the public homebuilders, their average product goes anywhere from about $250K up to us which is about $700,000 so obviously the increase [in sales] is taking place below our space. Which means that we’re not out of the woods yet. I took with surprise yesterday and it’s now confirmed today by this analysis when the secretary of the treasury said that we’ve got the hard times pretty much behind us I wondered how many communities he had and where he got that information but I now understand that the information he got hadn’t been pealed away, I guess, to show that it was $150,000 housing. So I would say that we have not got the bad times behind us yet though it could be… you never know.”

When asked about the April year-over-year comparisons getting less negative Toll suggested that favorably comparing against a year that “stinks” is not what he’s looking for.

“As you get further in to a down market, in terms of length of time, the comparisons are going to get better. So that, ultimately, if we stay here for a long period of time, you will see that April sales equaled April sales last year. That’s not what we’re looking for of course. So, I think the statements are a little misleading. The comparisons are good but what you’re comparing to stinks so that’s why your getting unhappiness expressed by the public home builders.”

Ivy Zelman, analyst with Credit Suisse First Boston tweaked Bob Toll in a minor skirmish over Toll’s interest in buying additional land.

Toll: “I would hope that we would increase the land portfolio somewhat from where we are now, we are actively looking and trying to buy… We have raised thresholds because we can and I think we should operate more prudently, more carefully than we did when the market was going up.”

Ivy: “You don’t feel that having almost a 10 year supply of land is enough?”

Toll: “Well, we hope that it’s not 10 years Ivy.”

The complete conference call can be listened to here.

Here are some of the interesting data points from the Q2 release:

Second Quarter Results

• Net income was $36.7 million down 79.0% compared to Q2 2006.
• Pre-tax land write-downs totaled $119.7 million up 897.5% compared to Q2 2006.
• Earnings per share declined 66.7% as compared to Q2 2006.
• Total revenues were $1.17 billion down 18.75% compared to Q2 2006.
• Net signed contracts were $1.17 billion down 25% compared to Q2 2006.
• Quarter end backlog was $4.15 billion down 31.6% compared to Q2 2006.
• Signed contracts was 2031 down 14% compared to Q2 2006.

Current 2007 Projections

• Deliver 6100 – 6900 homes (prior estimate 6000 – 7000).

Toll’s Dirty Dance

Ouch!

Things have not gone well for Toll Brothers (NYSE:TOL), certainly not nearly as well as CEO Bob “Dancing on the Bottom” Toll had anticipated as 2006 drew to a close.

Back then, an optimistic Toll had suggested that the housing downturn may likely have bottomed.

“Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above.”

Furthermore, at that time Toll Brothers announced that they budgeted an additional $60 million to account for all pretax write-downs for the entire year of 2007, an allotment easily surpassed by the $96.9 million actually required for only the first quarter of 2007.

Now, Toll has announced an additional $90 million to $130 million in pretax write-downs for just Q2 2007!

That brings the total of pretax write downs to somewhere between $186.9 million to $226.9 million for just the first half of 2007, a truly astounding number compared to the $152 million in write-downs taken in all of 2006.

As for the dancing, Toll now suggests that things have taken a turn for the worse.

“Virginia came back… remember when I had said, either last quarter or the quarter before that that we were dancing off the bottom.. or something opaque like that, in the northern Virginia, Maryland, Washington DC market. The market continued to improve, not much but a little bit, and [now] it’s back down a little bit.”

As for additional impairment write-downs soon to come from obviously poorly purchased property such as a very large parcel Toll purchased on the outskirts of Las Vegas in January 2006, Tool responded:

“The real answer is, you haven’t reached the point where can prove to your auditors that the value isn’t there and therefore has to be written down in order to show a profit. I mean, you could argue all day that Vegas is slow and this property is going to come on the market in 09 and if things are in 09 as they are today, when we open it, we’ll be hard pressed show a profit and they’ll want to get vary exact and say ‘hard pressed quite do it’. You’ve got to show that you’re below the line.”

When asked about his outlook for the housing market in Florida, Toll replied:

“Nice place to play golf in the winter, but not a great place to sell homes right now. There are probably great opportunistic land deals in Florida, the problem is, sometimes half-price ends up to be twice-price.”

When asked if he thought there would likely be additional future reductions of “head-count” (layoffs) Toll responded:

“I prefer to call it overhead, and the answer is yes. We haven’t stopped, but we will be looking even more seriously at reducing overheads where sales paces are reduced.”

When asked to “grade” the different markets across the nation, Toll responded:

“In our northern territories, Massachusetts and Rhode Island are ‘F’. Connecticut is a ‘B+’. New York exurbs are ‘B+’, New York urban which for us is Queens, Brooklyn and Manhattan are a ‘B+’ if not an ‘A’. Jersey City and Hoboken are a ‘B+’. New Jersey suburbs, oddly enough when you juxtapose them against the New York suburbs ... you got an ‘F’, it may be due to the tax situation in New Jersey, Michigan is an ‘F’. Chicago is surprisingly still and ‘F’ market. Minnesota is a ‘C-‘ market which is a whole lot better than it was. The Philadelphia suburbs is a ‘B’ market for us. The Poconos is an ‘F’ market. The state of Delaware is a ‘C+’ market. The mid-Maryland shore, as I said earlier, is an ‘F’ market. Washington DC, northern Virginia is probably a ‘D+’ market. Raleigh is a ‘B’ market. Charlotte is a ‘B’ market. South Carolina is a ‘D’ market as in dog. Florida, central market, Orlando, we sell a lot of homes, we get the same homes back, we sell the same homes, we get the same homes back, it’s a very hard market to figure. People, I guess are renting them without ever moving in. That’s and ‘F’ market. Florida east coast is an ‘F+’ market. Florida north, Jacksonville, pretty much an ‘F+’ market. Tampa is an ‘F’. Florida on the west coast is an ‘F’. Texas is good, Austin is a ‘B’ market, Dallas and San Antonio, we’ve got a ‘C’ market because we haven’t got our product up and running as we should yet so it’s only a ‘C’ market. I suspect it’s really a ‘B’. Northern California averages to be a ‘C’ market for us, there are some pockets that are ‘B’ and some that are ‘D’. California southern market is a ‘C’ market for us. California Palm Springs is a ‘C’ market for us. Arizona … I would rate as a ‘D-‘. Vegas is definitely an ‘F’. Reno is an ‘F’. Colorado is a ‘C’.”

During the conference call, there is extensive discussion on Toll Brothers outlook for impairments as well as their methodology and criteria used to determine and take them which can be listened to in its entirety here.

Here are some of the interesting data points from today’s preliminary release:

• Total revenue totaled $1.17 billion, down 19% as compared to Q2 2006
• Quarter end backlog totaled $4.15 billion, down 32% as compared to Q2 2006
• Net signed contracts totaled $1.17 billion, down 25% as compared to Q2 2006
• Pre-tax land write-downs totaled between $90 million and $130 million
• Q2 cancellations totaled 384 compared to 436 in Q1 2007

Remember, these results are preliminary and Ill post a more complete summary of Tolls Q2 results when they become available on May 24.

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Bull Trap?

Yikes! I don’t know how this one made its way under the radar but I certainly didn’t see the story when it first crossed.

Last December, in the wake of the Greenspan’s “Worst of this may well be over” outlook for housing, a second significant and widely publicized Bullish note was struck when it was announced that the Bill and Melinda Gates Foundation had made a substantial investment in the homebuilders.

At the time, I looked at the SEC filing (13F-HR) for these transactions and found that they were, in fact, taking a substantial position across the board buying whopping numbers of shares of Beazer, Centex, KB Home, Lennar, Pulte and Ryland totaling over $225,400,000.

Business media accounts at the time attributed this to sound, long term investing on the part of the massive trust, further suggesting that home builders had bottomed out in August 2006 permitting investors who take a long term approach an opportunity to scoop these stocks up at relative bargain prices.

Now, of course, we know that homebuilders are likely facing a substantially more problematic environment than any had anticipated last fall.

Experiencing historic declines to profits, massive impairment charges, momentous inventory backlog, the effects of the sub-prime credit crunch, and now even charges of fraud and accounting irregularities, the sector seems almost certainly poised for a new and substantially harsher leg down.

Without a doubt, many “investors” followed the Gates Foundation’s lead pumping plenty of cash into homebuilder stocks and those that continued to follow their lead probably made out pretty well.

Why?

Because the Gates Foundation apparently sold ALL their homebuilder holdings sometime in December 2006!

That was according to their latest 13F-HR filing dated February 14 outlining their holdings as of December 31 2006.

So was this a “Bull Trap”?

Not for the Gates Foundation as my estimates have them gaining roughly 12.5% or $28,200,000 on the transactions.

Not bad, but what of the numerous “investors” who likely had been influenced by the disclosure and subsequent Bullish media coverage of the trusts initial investment?

Well, we’ll never know for sure, but it’s safe to say that there was substantially less fanfare for the sale than there was for the purchase, most likely leaving many Bullish “investors” now rethinking the soundness of this long term strategy.

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Dancing with Toll

Yesterday, Toll Brothers executives were out in force, stumping simultaneously at two separate investor conferences.

First, there was the UBS US Home Building and Building Products Conference which featured several panels of home builder and product COOs and CFOs speaking about their respective companies as well as the outlook for the housing market.

In somewhat of a reversal of prior statements made by Bob Toll, Fred Cooper, Senior Vice President of Toll Brothers suggested the following regarding the effect of the sub-prime mortgage market had on housing demand:

“In 2004 2005 suddenly you had a ratcheting up of demand … so you had home price increases that were very rapid. As it turns out, in retrospect, a bunch of that home price increases were being fueled by speculators and I expect when the dust settles its going to turn out that a lot of the speculators were being fueled by the sub-prime mortgage market because they would be able to control five or six homes at a time without having to put up much capital.”

When asked about the credit quality of Toll Brothers buyers, Copper responded:

“Our buyers typically borrow just a little bit North of 70% of the purchase price of their homes so they’re not really overstretching. I would say 1% to 2% of our buyers use sub-prime and they generally use it for a bridge.. so it really wasn’t a big factor in our buyers buying ability. ”

Formally, Bob Toll made statements downplaying the effects that sub-prime mortgage lending had on their sales, suggesting that Toll Brothers buyers generally aren’t sub-prime buyers although he did note that there were quite a few investors buying Toll Brothers homes during the housing run-up.

Possibly the reality is somewhere in the middle whereby those who bought Toll Brothers homes for their primary residence generally used prime or Alt-A funding but speculating investors used sub-prime loans as Cooper suggested.

Cooper later makes the following statements:

“To say that we were wrong in 2004 2005… I don’t think we were wrong, we went from $400 million in profits to $800 million in profits and I don’t think that we would have wanted to forego those… Well I think what we missed was, I think we misjudged how impactful the speculators were.”

Listen to the entire presentation and Q&A here with Fred Cooper here.

Simultaneously, Robert Toll, CEO of Toll Brothers addressed Citigroup's Small & Mid-Cap Conference where stated that “housing is in a considerable slump”.

“Housing is a market of sub-markets and really shouldn’t be spoken about in general. Some markets are knocking them dead right now but their few and far between. Most of the markets are having a difficult time. The primary reason is the oversupply left by speculators and investors who got caught up in the mania of the price increases that were brought to the market by the extra demand created by the speculators and investors.”

Toll then goes on to play out a strange fictional scenario to demonstrate that in some markets, Toll is actually attempting to prove to buyers, with a little tough love, that there really is more demand than they think.

“somebody will come to the office and say ‘Ill take it but I need $10,000 more in incentives’… we’ll say ‘no’ and they’ll say ‘well I’m very sorry’ and they leave. Then they come back next week.. ‘how we doing…’ and we say ‘well I’m very sorry we’re doing well but we’ve had a two thousand dollar price increase and we are still maintaining the same incentives’ but we have posted a price increase because we want to show the market that we have more demand than the market believes we have and then that person will buy.”

Later, when asked to elaborate on these selective price increases during this spring selling season Toll offered this telling analysis:

“Well the Spring selling season is over, it’s a misunderstanding that we have been unable to correct over the past 40 years. In the new home business, you start selling immediately after the holidays.. it increases in number and then there’s a pretty substantial jump right after the Super Bowl because ‘she’ hasn’t been able to get ‘him’ out of the seat to go and see the product on Sunday, which is our big day, then you continue to run-up from after the Super Bowl to Presidents Day weekend… That’s the peak of the market… We have had this substantial jump from the December sales into January, we had this substantial jump from January into February but that jump cam no where near on a per-community basis to what it’s been on an average over the past 10 years.”

“As a matter of fact, it was probably as bad in traffic as a half, which is terribly down, now this is on average… the Spring selling season, or the prime selling season is pretty much a bust on a per-community basis.”

“When you stepped back and looked at it [it was] no where near where it should have been if you were looking at an average of the last 10 years.”

Then Toll goes on at length about speculators and the sub-prime market:

“By the way, speculative investors have not left the market entirely. There are still speculator investors that are now circling the market as the buzzards would on the carcass because prices have gone so far down on standing inventory that investor speculators are doing anything they can to try and get an additional incentive on that property and to buy it with as little as possible which was made possible by the idiocy of the sub-prime market until very recently. But it’s not done yet.”

“Sub-prime originators will struggle to continue to deliver sub-prime product because if they can’t they’re out of business, and before they go out of business they are just going to continue as hard as they can to be able to produce no-doc loans 100% financing… speculators eat this up.”

In a funny conclusion, Toll delivers another dancing anecdote:

“I remember in 1974 literally having to dance on top of the desk of the Third Federal CEO Mr. Greenberg who said if I got up and danced on his desk he would give me three mortgages so that I could take them and sell homes. Those were tough times… We may get there… I hope we don’t but we’re certainly not there right now.”

Listen to the entire presentation and Q&A here with Bob Toll here.

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