Toll Brothers, the largest U.S. luxury home builder, said it had lowered its sales forecast and increased incentives for buyers to weather a slowdown in demand.
The Pennsylvania-based company expects to deliver 10,000 to 10,300 homes for the full year, according to a statement Tuesday, down from previous estimates of 11,000 to 11,500. In a three-month period, Toll reported a 60% year-over-year decline in the number of contracts purchased to 1,266, surprising analysts who were expecting an average of 2,568 deals.
In recent weeks, the company has seen a surge in demand and said it has begun to “increase incentives moderately,” executives said on a conference call with investors Wednesday. Includes incentives of approximately $12,000 a month, $15,000 in June, and approximately $22,000 to $30,000 in July.
“We’re going to see better traffic, better quality traffic as the summer ends, but we recognize that it’s clearly a buyer’s market,” Chief Executive Officer Douglas Yearley said on a conference call. We will act accordingly,” he said. .
After pandemic sales rush, U.S. builders are facing a plunge in demand, with new home purchases in July plunging to their slowest pace since 2016, according to the latest government data. The recession has prompted many companies to offer discounts and other buyer incentives to avoid stockpiling.
Most of Toll’s customers are home buyers who can afford a home sale price that averages about $1 million. Still, mortgage rates, which have nearly doubled since the beginning of the year, have dampened purchasing power and slowed sales of existing homes, making it harder for potential buyers to upgrade.
Sharp increases in interest rates and home prices, stock market volatility and economic uncertainty have resulted in a “significant reduction in demand” for Toll in the third quarter, Yearley said in a statement. “However, in recent weeks there have been signs of increased demand as sentiment has improved and buyers have returned to the market.”
New York City has been one of the best markets for the company this quarter, a shift from the early days of the pandemic when people were leaving cities, executives said by phone.
Other strong markets include New Jersey, Philadelphia and Atlanta. Among the weakest areas are COVID-era boomtowns such as Austin, Phoenix and Boise, Idaho.
Bloomberg Industries analyst Drew Redding said after Tuesday’s results that the impact of the economic slowdown was likely to last into 2023 as Toll’s housing construction takes time.
Redding said in an email, “Current homeowners will be less inclined to upgrade as home prices rise significantly and interest rates on current mortgages may drop significantly. The market will continue to face unique challenges.” “Market caps tend to be more discretionary, meaning continued volatility in stock markets can remain overhanging.”
Natalie Wong and John Gittelson, Bloomberg