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After the Housing Bubble: Toll Bros. CEO is Optimistic About Home Prices
How’s this for divergent thinking? Granted, home builders are looking past the housing bubble as they try to anticipate future demand and position themselves in growth markets. But, if Toll is right, those who buy now will be richly rewarded.
Daily Real Estate News / April 25, 2007
Toll Bros. CEO Expects Housing Shortage
Robert Toll, CEO of luxury home builder Toll Bros., predicts that U.S. home prices will climb so high in the next five years that housing will represent 45 percent to 50 percent of household income, up from 21 percent in 2006. Why? Toll says restrictive zoning is reducing the number of new houses in the pipeline, making it likely that there will be a shortage in a few years.
Meanwhile, the business of building and selling new high-end homes isn’t easy. Commenting on the health of various markets, here’s what Toll told 3,000 executives attending the Michael Milken Global Conference in Beverly Hills:
“Boston is still in the pits and Connecticut looks better, although I don’t understand why this is the case. They’re just a few miles apart. New York’s exurbs are doing exceptionally well. We’re building in Fishkill and Peekskill – places I’d never thought I’d be in a million years. In North Jersey, things stink. Pennsylvania is OK. Florida is terrible – death takes a holiday. Texas is good; but in Phoenix, Indiana Jones did go off the cliff – his fingers did not hold. California was a comeback briefly but recently it has dipped. Chicago – not really. Minneapolis/St. Paul is not so good. Michigan might be a situation that never comes back.”
No sugar coating here. I love the candor!
“California was a comeback briefly but recently it has dipped”
So what about Sacramento? November and December brought activity and hope, but today the market is slow, buyers are scarce, and offers are low even when properties are well priced. Chris DeMattei of Keller Williams says that “relative price”—being priced below your neighbors—is important, but only if the home is affordable to begin with. Brian Gardner of Metro Appraisals sees 10% price declines in certain parts of Sacramento over the past 90 days.
Where are we headed? What are “affordable” prices? I think the magic number is around 2003 price levels. At last November’s 2006 Sacramento Region Housing Forecast, Greg Paquin of the Gregory Group charted the divergence of median incomes and median homes prices that began in 1998 and subsequently picked up speed. You can see where prices became unaffordable. According to Gardner, we are already at 2004 levels. DeMattei believes that 2003 prices represent the place where mortgage payments and rents meet. I agree. The good news is that we are getting close.
Smart buyers should be buying or getting ready to buy now. If you find the perfect home, buy it. You might save a few bucks if you wait, but rising rates could offset the lower price. \
And, worst of all, someone else might end up living your dream.
Leave a comment; I know you have something to say!
Got a question? Email me.
April 28th, 2007 at 10:46 pm
I totally agree with Toll Bros. The cloud is lifting
April 29th, 2007 at 8:16 pm
What? This so called crash hasn’t even really started yet. Once again here is a profiteer who is trying to work people up into another greedy feeding frenzy. What’s even more absurd is that he’ll convince enough of these deluded fools to “invest” into an already sinking ship, while he stands next to the lifeboat wearing a lifevest. If the money lusting flippers had paid heed a few years ago and not mortgaged their financial future then the market would have stayed sane enough that even the inflated prices back then would have tilted back to realistic levels without too much of a disruption to the overall economy. But now an enormous crash is beginning, possibly a serious depression due to the piggishness of way too many avarice idiots with fortune flipping dreams. And this bozo might actually talk some more suckers into dreams of quick bucks for little effort. Ha!
April 30th, 2007 at 3:46 pm
But Steve, it looks like you and Toll are grinding the same ax…an inventory of homes to sell. I’d like for real estate to spring back too, but that doesn’t appear to be right around the corner.
I speaking with from a West Coast point of course, but the inventory and absorption issues are national.
z flynn. When you have a hammer, every problem looks like a nail. I share your sentiments about paying the losses for the flippers who gambled and lost. Not my problem.