Keep in mind that a year ago we were well into the current housing apocalypse. So when builders today tell us about down numbers from a year ago, they really mean down.
On Tuesday, Toll Brothers (NYSE: TOL), the nation's top builder of luxury homes, said in a preliminary release that its homebuilding revenue for the quarter ended last month -- the company's second fiscal period -- had fallen 30% to $817.9 million. That's from the $1.17 billion in the same quarter a year earlier. Gross contracts written by the company during the quarter were down 49% in value and 39% on a unit basis.
While I don't want to inundate my Foolish friends with numbers, the difference in those two contracts percentages tells a key story about homebuilders' circumstances today. The reason the value number was higher than the unit number relates to the decline in prices that most builders have realized. In Toll's case, the average contract price was $590,000 in the most recent quarter, down 17% from the $711,000 average in the same quarter of 2007.
In discussing the current state of housing and his company's particular situation, Toll's always quotable CEO Robert Toll noted that buyers have "remained on the sidelines." However, he again pointed to the "pent-up demand" that he discussed several quarter ago. He said that when his company has held sales promotions, buyers "have come out to play and put down deposits." But all too frequently their lack of market confidence ultimately prevents them from following up with contracts.
Despite the negatives that continue to assail Toll and his company, my belief is that, given its luxury builder status, Toll Brothers is likely to recover more quickly than such other builders as Beazer (NYSE: BZH), Pulte (NYSE: PHM), D.R. Horton (NYSE: DHI), or Ryland (NYSE: RYL), all of which cater more directly to first-time and first move-up buyers. But while Toll's shares have increased 13% this year, I would continue to point out to Foolish investors that consumer confidence, a key metric for folks' willingness to take the homebuying plunge, remains lower than a snake's belly.
So if you're determined to tie into a homebuilder, Toll, with its elevated price points and solid balance sheet, is probably a sensible target. Just be prepared to incubate your shares longer than you might have previously.
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