Shares of luxury homebuilder Toll Brothers (TOL) are climbing after the company reported robust first-quarter results driven by strong demand. Toll Brothers orders jumped 40% compared to a year ago, as the key spring selling season gets underway.
Yahoo Finance Housing Reporter Dani Romero breaks down the details, providing insights into how the company has benefited from implementing speculative home strategies and its outlook on mortgage rate buydown incentives.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Angel Smith
Video Transcript
RACHELLE AKUFFO: All right, well, we're also looking at shares of Toll Brothers popping after fiscal first quarter results. The building company reporting a 40% rise in orders, signaling a strong start to the spring selling season this year. Let's bring in Yahoo Finance's Dani Romero to give us the lay of the land. So Dani, what are we seeing here?
DANI ROMERO: Rachelle, Toll Brothers is kicking off the spring selling season with a bang. Sales and orders were up this quarter. Another thing to point out from the earnings call is that a few buyers are actually using the mortgage rate buy downs. That's when the builder upfronts the cost to lower the rate on the loan.
That really stood out to me. Remember, Toll Brothers' customer base is really more affluent, so their priority is really to use those incentives either to upgrade their home or reduce their closing costs. And homes for the quarter actually closed with a price tag of over $1 million.
Another strategy that Toll Brothers has been able to gain the market share really is using the spec strategy. That's when you build a home without a buyer in mind and this strategy has been a success for Toll Brothers since most buyers really want to go move into a home as soon as possible. They don't want to wait for their home to be built. So this strategy really has been a win for Toll Brothers.
Bottom line, Toll Brothers is not too concerned that if the resale market does unlock itself and more homes get listed on the resale market, Toll Brothers CEO pointed out that the majority of those homes that do get listed are about 45 years old. So that means that those homes will need to be renovated.
That could cost more money and that could take some time. So really there's not too much concern that if the resale market does, you know, unlock itself, that that would some way hinder the new home market. Doesn't sound like it.
AKIKO FUJITA: So Dani, what does this ultimately mean for the homebuilders as we look ahead to the spring selling season?
DANI ROMERO: Well, the spring selling season is underway. And this is usually a time when home prices actually go up, but some homebuilders have actually pointed away from that. Toll Brothers said in their earnings call that they will be cautious the next quarter. They will be increasing home prices modestly, especially that rates have remained elevated.
Another thing to point out is that other homebuilders have signaled that they will not be pulling back on incentives, like those mortgage rate buy downs. And for example, Lennar, DR Horton, those are the biggest homebuilders. They have pointed that they are not going to be pulling back on those incentives. Remember, these incentives have really helped drive the new home market. So this is really a good picture as we look into the spring selling season. Akiko.
AKIKO FUJITA: Dani Romero with the very latest there. Thanks so much.
