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A Geographical Analysis of Toll Brothers’ Results

What Toll Brothers' Fiscal 1Q16 Says about the Real Estate Market

(Continued from Prior Part)

All real estate is local

In its earnings release, Toll Brothers (TOL) gave a geographic breakdown of its different markets.

Above are the segments in the Traditional Homebuilding Sector. More specifically, the segments are:

  • North: Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey, and New York

  • Mid-Atlantic: Delaware, Maryland, Pennsylvania, and Virginia

  • South: Florida, North Carolina, and Texas

  • West: Arizona, California, Colorado, Nevada, and Washington

Now for a summary of the four areas.

Northern segment

Deliveries in the North, not counting the City Living New York City developments, fell on a year-over-year basis in terms of units. Average selling prices rose from $631,000 to $671,000.

However, contract signings rose from 177 units to 244 units. Average selling prices for signed contracts rose 13.2% to $707,000.

Mid-Atlantic segment

Deliveries in the Mid-Atlantic segment rose to 279 units from 262 units. However, they modestly rose in dollars due to a fall in average selling prices from $624,000 to $609,000.

Contracts rose in unit terms but fell in and dollar terms as average selling prices fell from $660,000 to $624,000.

South segment

Deliveries fell in unit terms, and a rise in average selling prices from $686,000 to $741,000 wasn’t enough to increase deliveries in dollar terms.

Contract signings rose in units to 210 from 199 a year ago. Average selling prices fell 6.6%. It looks like the fall in oil prices is beginning to affect demand in Texas.

West segment

Deliveries rose in both unit and dollar terms in the West. Average selling prices were flat. The West Coast market is doing great overall, and the Mountain states are picking up as well, especially Denver.

Toll Brothers has exposure to some of the hottest markets while avoiding some of the more downbeat markets such as most of the Midwest and parts of the Deep South. Diversified builders such as PulteGroup (PHM) and D.R. Horton (DHI) have seen slower organic growth than coastal builders such as CalAtlantic (CAA).

Investors who want to gain diversified exposure to the homebuilding sector can look at the S&P SPDR Homebuilders ETF (XHB).

City Living

Toll Brothers’ urban segment reported a huge rise in average selling prices to $3.0 million from $2.2 million a year ago. That said, deliveries in units were small at 45.

Browse this series on Market Realist:

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