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Toll Brothers CEO: ‘Housing Recovery Is the Real Deal This Time’

Purchases of new homes in January hit their highest level since July 2008, climbing 15.6% to a 437,000 annual pace. The S&P/Case-Shiller Home Price Index showed gains of 0.2% in December – more than anticipated. The latest data give support to the argument that the housing market recovery is underway and sustainable.

Douglas Yearley, CEO of luxury homebuilder Toll Brothers (TOL), says in an interview with The Daily Ticker that the recovery “feels like it’s the real deal this time.”

“We feel really good in almost every market we have in the country,” Yearley notes. “We’re seeing great traffic and sales.”

Related: Is Rebound in Housing Creating Another Bubble?

Yearley points out that orders for new homes are up 50% year-over-year and 40% for the first three weeks of February. The Horsham, Pa.-based company has been raising home prices in the majority of its 50 markets, a move that has encouraged undecided homebuyers to take the plunge.

“The more and more we can raise prices, the more [homebuyers] feel a sense of urgency and that’s materializing into sales for us this spring,” Yearley says.

Yearley also credits historically low mortgage rates as the impetus for housing demand. Economists, such as Nouriel Roubini, contend that the low rates promoted by the Federal Reserve to boost the economy are creating the same bubble that crashed the housing market six years ago.

Yearley disagrees.

“People are taking advantage of low interest rates… the difference this time around is that underwriting for mortgages is much more difficult,” he says. “We’re in the very early stages of a recovery.”

Related: Nouriel Roubni Is Bullish...For Now: "The Mother of All Bubbles" Has Begun

Toll Brothers reported last week that it earned 3 cents per share in the first quarter, below the Street’s forecast of 10 cents. First-quarter revenue rose 32% to $424.6 million, short of the $502.2 million analysts were anticipating. The earnings report sent shares of Toll Brothers down 7%. Toll Brothers stock has gained nearly 50% in one year versus 40% for the S&P Homebuilders Index (XHB). Toll Brothers also reported that it expects to deliver between 3,750 and 4,300 new homes in FY 2013, down from the 4,400 it had previously forecast. The average selling price for its homes in Q1 fell to $569,000 from $571,000 a year earlier.

Toll Brothers’ core business may be building luxury new homes, but that has not stopped it from entering other real estate markets such as apartment rentals and urban construction. The company has significantly benefited from its ventures in Manhattan, Brooklyn and Jersey City/Hoboken, N.J. because these markets emerged relatively unscathed from the housing downturn. Yearley sees these new opportunities as a hedge against the company’s traditional business model.

“Wouldn’t all the home builders have loved to have a little bit of an apartment business” seven years ago, Yearley says.

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