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Tuesday, November 11, 2008
Toll Brothers Revenue Declines 41%
Associated Press
HORSHAM, Pa.--Luxury homebuilder Toll Brothers Inc. (TOL) said Tuesday fourth-quarter home building revenue dropped 41% as the financial crisis exacerbated ongoing weakness in the housing market.
Toll said preliminary home-building revenue declined to $691 million from $1.17 billion, while backlog slipped 54% to $1.33 billion from $2.85 billion.
Net signed contracts for the quarter also slid 27% to $266.7 million from $365.3 million.
For the fiscal year ended Oct. 31, home-building revenue declined 32% to $3.15 billion, and net signed contracts declined 47% to $1.61 billion.
Toll ended the fiscal year with $1.63 billion in cash and believes this liquidity can help the company weather turmoil in the industry.
Chief Executive Robert I. Toll said the preliminary signs of stability in the market discussed by the company in early September were reversed by the financial crisis. At that time, Toll said there were signs of a stabilizing market, as Toll had the lowest contract cancellation rate in more than two years, and more buyers were putting down deposits.
But on Tuesday, Toll said accelerating fears of job losses and a large decline in consumer spending, among other factors, contributed to drive cancellations up to 233 units and drive home buyer confidence and the company's traffic and demand down to record lows.
Toll Brothers will release full results on Dec. 4.
FOX Translator
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If you¿re like the vast majority of the population, buying a home is the largest personal investment you will ever make. You're buying something that¿s many times your yearly salary with the intention of holding onto that home for many years.
The bank you're going to get the money from to buy that home knows that, too. And if you're going to get a mortgage on a home, the bank wants to know how you're going to pay for said house.
Usually, you give a lot of paperwork to the bank, so the bank can tell if you're able to afford the house or not. You give them bank statements, credit card statements, letters from your employer stating your salary, tax returns, etc.
But, what happens if you may not be the perfect candidate for the home of your dreams? Or, you're buying too much home (the bank thinks you can afford a $200,000 home, you want a $230,000 home). Or, you don't have the money for a down payment. Or, you haven't paid your bills on time in the past. Or, the documents of how you make your salary are not 100% available.
Enter the subprime mortgage. Subprime mortgages are loans given by banks to people who may fall under any one of those above conditions, or others. Why would anyone want a subprime mortgage? Well, homebuyers get subprime mortgages because they get to buy the home they want. Banks give subprime mortgages because they can charge people more money for that mortgage. Remember, the difference in interest rates on a $200,000 or $300,000 home can mean the difference between hundreds of dollars in interest payments.
Still there¿s risk for both the person getting the mortgage and the bank granting it. When the playbook works, the value of the house rises. So, even if Joe Q. Badcredit couldn't afford the house he bought in 2001, at last resort Joe or the bank could sell the home, make a bundle off its increased value, and the bank could get its money back.
The playbook goes out the window, though, when home prices don't increase. Then homeowners run the risk of defaulting and banks lose money. At its worst, homeowners can lose their houses.
If you¿re in the market for a home, and the banker says you qualify for a subprime mortgage, it probably means you need to provide more documentation of how you¿re going to pay for that house. Or, you may be buying too much home. Talk with your banker about why you qualify for a subprime mortgage, and try to fix it.
