Bob Toll: "Yesterday's Sub-Prime Is Today's FHA...and I'm a Liberal Democrat"

Mr. Toll is a complex man to say the least… Today’s Toll Brothers portion of the UBS Building and Building Products CEO Conference was easily one of the more interesting (though slightly odd towards the end) that I have listened to in recent years.

The following is an interesting excerpt concerning FHA as well as an odd ball… almost bizarre account of American culture from an obviously conflicted vantage point of one of the country’s largest luxury home builders.

Questioner: On the FHA stat, a lot has been made about the whole industry going there right now, not that it’s a big number for you guys but I’m surprised that even 8% of your volume would be … If that is supposed to be “low income” qualifiers how does that jive?

Bob Toll: How do we get 8% of our action into FHA? We do multi’s at $480, $490 … we do multi’s as low as $350 in some cases and that adapts to FHA real easily… Joel?

Joel Rassman: and we also have two condo-convert buildings that qualify for FHA in general … between multi’s that are built units and the condo convert it runs about 8%...

Questioner: Is it income limit? What’s the income limit run these days for that?

Joel: Well it’s a combination of income and price point for your house but I don’t know the FHA statistics.

Bob: Income… I’m not aware that there is any barred income to taking advantage of FHA if you’re a multi-millionaire… I thought you could still do it… I didn’t think you had to be poor…

Questioner: What’s the governor on the usage then though? Or why wouldn’t obviously everybody take advantage of it… that was the intent originally… Right?

Bob: The governor on it was that it was impossible to deal with, you had all sorts of inspectors and qualifiers and administrators… that made it a big pain in the butt… and so Fannie Freddie was around with the same limits and much easier financing so why would you go FHA?

Well the reason you go FHA is… um... FHA is the new Sub-Prime.

What the government is doing is beyond belief in that “once upon a time” ... I’m talking about these glorious days of like… a year and a half ago… FHA did very small percentage of the business of the country. I don’t know what the actual percentage was… I bet it was 2% or 3%... and today FHA is doing like 30% of the business and the reason is yesterday’s sub-prime is today’s FHA.

Whereas on a Fannie Freddie you’re talking 20% down … you can go get the last 10% if you struggle hard from another guy and give a combo-rate but on FHA you’re talking 3.5% down… now if you’re doing business at $120,000 and your giving and $8000 credit and your only making the guy put down 3.5% not only does he get the house but he gets some cash to walk away from the settlement table with… so yesterday’s sub-prime is today’s FHA…. I think its nuts.

Questioner: So it’s another train wreck again?

Bob: It’s a definite train wreck… the flag will go up within the next couple of months… it already has preliminarily gone up… “Bail us out”… “give us some more money”…

Questioner: I mean… not you guys but again … some of the other publics have 60% or 70% of their volume now coming that way…

Bob: Thank god the country is rich enough to afford it if we don’t keep going on and on and on…

You see how much money they say expect will be coming in because the guys that came back from Switzerland clean? (… SAT: a reference to the IRS’s recent voluntary amnesty program) … how much did they say… ten…

Joel: I’m not sure this is the appropriate conversation in this room… Bob…

[Laughter]

Bob: …tens of billions?... oh that’s right… UBS.

[Laughter]

Joel: Sorry guys…

[Laughter]

Bob: Any other questions?

LATER…

Questioner: … as you move forward, I understand that things haven’t really changed and you’re not really seeing a change maybe in the size of the house or the demands of the house or what buyers want… we talk to a lot of private builders and we consistently hear that they believe that the future for the business is going to be dramatically different in terms of the kind of houses buyers want… they want stuff that is more urban… they want stuff that is closer to transportation… they are willing to sacrifice size for that and I’m just wondering how you think about that within the context of your buyers…

Bob: That’s a lot of bull…

[Laughter]

Bob: I was through it in ‘68, and I was through it in ’74, I was through it in ’80 ’81 ’82, I was there in ’88 ’89 ’90… now I’m here in Katrina ’05 to probably March of ’09 and every time we go through one of these cycles it is almost exactly the same movie… if they dropped you into the theater and didn’t tell you what year it was you couldn’t tell if it was ’09 as apposed to ’81 ’82.

It’s always the same thing… we want smaller, more affordable, more energy efficient … we want to be closer to the city… we want more urban … we want more flex space… it’s all bull.

As soon as it straightens itself out and the market gets healthy again… if the market doesn’t get healthy… if the society reflects an economy that is running at half the speed the economy ran at during the good times of the cycle, the you’ll see a paradigm change in our business.

But unless that occurs, I don’t think you will. The same drives and ambitions that drove the market will once again drive it.

I don’t know how deeply we want to get into this… It would require also a political socio-economic group thesis feeling (SAT: WOW!.. What?!) to occur in order to change the business.

Up until Regan… which means coming from the second world war through Jimmy Carter… it was embarrassing to a certain extent to show your wealth by building a 20,000 square foot manse… by having three in help… most of the country was pretty demure… and kept it under its seat…

And then came along the Regan Revolution… and “trickle down” economics… and it was not only alright … it was deserved and right and applauded to have wealthy people buy boats… buy big homes… have multiple homes… for they were the drivers of industry and the Capitalist system in this country… and the middle class would derive benefit from that.

Let forget about whether that is true or not… doesn’t matter… what happened was a different mindset took the public entirely and it was alright to get bigger and better and show the wealth… that is still with us.

Now, Obama has spoken about changing the makeup of society … but every time he has he’s gotten slapped around for it.

Those that have already got don’t want to hear that f you belong to a country club and you have your own plane and you have multiple houses that something is wrong with you… and that you should get back into supporting what made America great… well… it’s debatable as to what made America great …

By the way… just so you know where I stand… I’m a liberal Democrat and raised tons of money for Obama so I don’t want you to think that this comes off of my personal feeling... I was the only builder that voted against the NOL extension (SAT: tax carryback from recent legislation) but that’s politics and I don’t want to get into that…

But what I want to get into is where the society now stands… It’s going to take a mighty tough guy to convince this society that it ought to go back to pre-Regan philosophy… which is that it is wrong to show your wealth… so unless you believe that were going to have a socio-economic tidal wave change the way we live, I don’t think you’re going to see a difference… I think people are still going to want three bedrooms instead of two bedrooms. I think they are still going to want 5000 feet instead of 4 or 4 instead of 3 or 3 certainly instead of 2… and that goes for high-rise as well as suburban luxury.

Sorry for all of that…

The Boogie Continues with Bob Toll

Yesterday, Toll Brothers (NYSE:TOL) reported Q3 earnings results confirming an additional $147.3 million of pretax write-downs that helped to depress their net income by an astounding 84.82% as compared to Q3 2006.

Also, it's important to note that the company has now announced a total of $363.9 million in pretax write-downs thus far in 2007 in a year that, in December of 2006, they had anticipated at most $60 million.

During the conference call, CEO Bob Toll appeared to offer very little optimistic sentiment pointing out that “horrible” buyer traffic is and setting new lows, handily surpassing the lows of prior downturns.

Additionally, Doug “The Bear” Kass of Seebreze Partners Management, Inc. makes an interesting appearance toward the end of the call.

The following are excerpts from yesterday’s conference call:

When asked about his “F- -“ rating for the Las Vegas housing market Toll replied:

“You might add another minus to that… What does it mean? It means you’ve flunked and what are we doing about it? We’re out there with the rest of the builders in Vegas praying. There’s not much you can do… You can’t advertise your way out of that situation. You just have to wait for a market to come back.”

Then referring to the results of the entire operations in Las Vegas, Toll reported:

“This week we took no deposits… we did take one agreement. Last week we took five deposits… the week before that we took none. The week before that we took six… The preceding four weeks before that we took twelve. These are deposits… I would guess about two thirds go to agreement. Then some of the agreements don’t stick. In the last eight weeks we’ve taken seven agreements. So, that’s what we consider real bad.”

When asked about whether buyer traffic was down in August as the mortgage-credit meltdown issue heated up Toll responded:

“Very simply, traffic is horrible. This past week was the lowest traffic for this particular week ever in our history. And that condition has existed, pretty much, for the last nine weeks. And then prior to that, there was a little hiatus where we did a little better that the worst in our history… then going back a little further, once again we are doing the worst in our history. So, our history includes ’87, ’88, ’89, ’90 so traffic is pretty stinky out there. ”

The final “piece de resistance” of the conference call was delivered by none other than Doug “The Bear” Kass of Seabreeze Partners Management, Inc.

Kass asked “This is a much broader question than has been asked on the conference call…(Toll: It’s great to be a short by the way… Kass: chuckles…) If the administration came to you to resolve the housing crisis, what remedies would you recommend Bob to bring supply and demand back into balance over a reasonable period of time?”

“Well, I think the most important thing is to immediately address the mortgage concerns. Giuliani was asked in an interview with Kudlow recently… would he bring in any regulation and he said that it was up to the market to straighten things out and it will. In my opinion, that’s probably what the guys said in ’29 that were running the Fed.

I was castigated recently for suggesting a few weeks ago that some government regulation would not be a bad thing. The average reaction was, the minute you let the government in, you’re begging for disaster. I can generally agree with that, look at whats happened with wetland regulations for instance… you need a team of lawyers to fill a puddle in your back yard.

On the other hand, where would we be without anti-trust legislation? We would probably have one oil company known as the United States of American Standard…. (chuckles about the slipup… American standard is a toilet manufacturer Toll was referring to Standard Oil)

I think a little regulation wouldn’t be a bad thing. I wouldn’t rule out 100% or 90% LTV but if you’re seeking that kind of thing, you have to pledge additional assets or at least prove additional assets so that so if the home price goes down and you want to walk, the mortgage lender has got a note that he can apply not only to the home but that he can apply to other assets that are obviously sufficient to take care of the loss.

What happened was, for a hundred years we had S&L’s as the backbone of the mortgage system and then they went bad and we tossed the baby out with the bathwater. And went to another system, that I don’t suggest that we try to break away from which is the securitization.

The problem is, everybody is working on commission today, nobody is a portfolio lender.

The guy that wants to get you the mortgage is a commission fella, and he’s handing it over to guys that are working commission to package it. The brokers are working on commission in order to sell the goods. And the guys buying the goods are not really paying attention to what they’re buying. And I think it’s reasonable to have standards imposed that you can’t lend above these lines and that should, to some extent, protect us from ourselves.

But I’m getting so many ‘cut the throats’ around here… guys are signaling to me to please stop this… and remember this is a Toll Brothers call and not a Bob Toll call so I’m off, I’m going back to Toll Brothers.”

Listen to the complete Q3 conference call here.

Here are some of the interesting data points from the Q3 release:

Third Quarter Results:

• Net income was $26.5 million down 84.82% compared to Q3 2006.
• Pre-tax land write-downs totaled $147.3 million up 516.31% compared to Q3 2006.
• Earnings per share declined 85.04% as compared to Q3 2006.
• Total revenues were $1.21 billion down 20.91% compared to Q3 2006.
• Net signed contracts were $727 million down 30.76% compared to Q3 2006.
• Quarter end backlog was $3.67 billion down 34.34% compared to Q3 2006.
• Signed contracts (after cancellations) was 1110 down 23% compared to Q3 2006.

Current 2007 Projections:

CANCELLED!... Your now on your own.

OFHEO Home Price Index: Q1 2007

Last Friday, the Office of Federal Housing Enterprise Oversight (OFHEO) published their Home Price Index (HPI) data for Q1 2007 showing continued deceleration of home price appreciation in most regions as well as outright declines in many states and metropolitan areas.

The current installment shows declines to the East North Central and New England census regions as well as to 25 states (using “purchase only” data) including Michigan, Massachusetts, Californian, and Florida and a whole host of Metropolitan Statistical Areas (MSA).

I have updated my OFHEO HPI Charting Tool by both updating the data as well as adding some additional features that make the tool more powerful but first, I should mention some background on the OFHEO HPI.

The OFHEO HPI series is formulated from home purchase and refinance information collected from Fannie Mae and Freddie Mac and as such suffers slightly from some basic limitations of the data.

First, Fannie and Freddie mortgages are subject to conforming loan limits which eliminates huge portions of data that are particularly relevant given the current bloated state of home prices.

A great percentage of home purchases made in the last decade, especially in the bubbliest areas, were made with Jumbo loans that, by their definition, exceed the Fannie-Freddie conforming loan limits and as such are not included in the OFHEO data.

Also, data from mortgages made for the purpose of refinance are also included which may have a tendency to skew the HPI series.

Fortunately, OFHEO now produces “Purchase Only” indices (i.e. HPI indices derived only from home purchase mortgage data only) for all census and states statistical areas.

In general, because the “Purchase Only” indices are based on home price changes from only home purchase transactions, they tend to show a greater degree of deceleration and/or decline than the complete data indices and may be a better indicator of the overall state of each particular housing market.

Although it’s generally recognized that the S&P/Case-Shiller (CSI) home price indices are more accurate than the OFHEO indices, OFHEO offers data for over 400 different census, state and metropolitan statistical areas compared to only 20 major metro areas for the CSI.

The OFHEO HPI Charting Tool allows you to visualize the HPI data as well as compare data from different areas.

Additionally, the tool now fully supports the “Purchase Only” data as well as allowing you to “normalize” the data in order to make a true comparison from one area to another.

To illustrate how to use the tool, I will build up a simple chart that compares the data from the New England census division, Massachusetts, and the Boston-Quincy and Cambridge-Newton-Framingham Metropolitan Statistical Areas (MSA).

For the following chart (click to jump to the tool itself), I added the New England census division to the chart by going to the “U.S. Census Regional Division” section and “checking” New England and also “un-checking” the United States.

Then, in the section of checkboxes just under the “Update Chart” button, I checked the “Show Complete Index”, “Show Purchase-Only, Seasonally Adjusted Index (if available)” and “Normalize using base of 100” checkboxes.

Finally, I constringed the date range a bit by going to the “Date Range” section at the bottom and selecting “1991” in the first dropdown and then clicked the “Update Chart” button.

Other than the over 150% increase in New England home values seen since 1993, this chart shows that the “purchase only” index has seen a more significant increase that the “complete” index and appears to have declined more since the peak.

To get a better sense of what has gone on since the peak, let’s constrain the date range even more, by setting the starting year to “2000” in the first drop down found in the “Date Range” section at the bottom and then clicking the “Update Chart” button.

Now you can clearly see that there is a significant difference between the “purchase only” data and the “complete” data as the “complete” data series has decelerated but has not yet registered an actual decline compared to the “purchase only” data which peaked in Q1 of 2006 and has declined steadily ever since.

Since the “complete” data seems less then perfect, lets “un-check” the “Show Complete Index” checkbox found at the top and “check” the Massachusetts checkbox found in the “States and District of Columbia” section and then click the “Update Chart” button.

We can see from this chart that Massachusetts actually peaked in Q2 2005 and has been trending down ever since as well as the fact that the extent of the decline seen in Massachusetts far surpasses that seen by the New England region as a whole.

But something about this chart seem to run counter to the basic expectation that Massachusetts has the “hottest” real estate markets in New England, namely the fact that the New England data seems to peak at a higher value than the Massachusetts data.

This is because the chart is showing the two data series in “normalized” mode which, for simple comparison purposes, adjusts all the data on the chart to start with a base value of 100.

With the normalization feature you can compare two totally different data series and get a sense as to the relative changes they have made over the same time period.

In order to get the “real” view of the data, simply un-check the “Normalize using base of 100” checkbox and click the “Update Chart” button.

Now you can see that Massachusetts home prices have appreciated to a greater degree than the New England region as a whole.

But since we really do want to make a relative comparison across different data series, let’s continue with the “normalize” checkbox checked.

Now, lets add the Boston-Quincy and Cambridge-Newton-Framingham Metropolitan Statistical Areas by selecting “Boston-Quincy,MA” and “Cambridge-Newton-Framingham,MA” in the first and second drop downs found under the “Metropolitan Statistical Areas and Divisions” section then click the “Update Chart” button.

Now you can see that Boston peaked in Q1 2006, and Cambridge peaked in Q3 of 2005 while all data series declined steadily throughout 2006 and continue to decline today.

You can follow these general steps with any state and set of areas and do particularly interesting comparisons by “mixing and matching” completely unrelated areas.

Gettin’ Down with Toll

Toll Brothers (NYSE:TOL) reported Q2 earnings results last week confirming a $119.7 million of pretax write-downs that served to depress their net income by an astounding 79% as compared to Q2 2006.

Additionally, Toll yet again reduced its expectation for the maximum number of homes delivered for 2007 from 7300 homes last December to 7000 in Q1 now to 6900.

During the conference call, CEO Bob Toll uncharacteristically offered very little optimistic sentiment even offering some skepticism regarding recent Treasury Secretary Paulson’s “market bottom” outlook and the recent up-tick in the Census Department’s New Home Sales.

“I think what that indicates is that most new homebuilders that are large, the public homebuilders, their average product goes anywhere from about $250K up to us which is about $700,000 so obviously the increase [in sales] is taking place below our space. Which means that we’re not out of the woods yet. I took with surprise yesterday and it’s now confirmed today by this analysis when the secretary of the treasury said that we’ve got the hard times pretty much behind us I wondered how many communities he had and where he got that information but I now understand that the information he got hadn’t been pealed away, I guess, to show that it was $150,000 housing. So I would say that we have not got the bad times behind us yet though it could be… you never know.”

When asked about the April year-over-year comparisons getting less negative Toll suggested that favorably comparing against a year that “stinks” is not what he’s looking for.

“As you get further in to a down market, in terms of length of time, the comparisons are going to get better. So that, ultimately, if we stay here for a long period of time, you will see that April sales equaled April sales last year. That’s not what we’re looking for of course. So, I think the statements are a little misleading. The comparisons are good but what you’re comparing to stinks so that’s why your getting unhappiness expressed by the public home builders.”

Ivy Zelman, analyst with Credit Suisse First Boston tweaked Bob Toll in a minor skirmish over Toll’s interest in buying additional land.

Toll: “I would hope that we would increase the land portfolio somewhat from where we are now, we are actively looking and trying to buy… We have raised thresholds because we can and I think we should operate more prudently, more carefully than we did when the market was going up.”

Ivy: “You don’t feel that having almost a 10 year supply of land is enough?”

Toll: “Well, we hope that it’s not 10 years Ivy.”

The complete conference call can be listened to here.

Here are some of the interesting data points from the Q2 release:

Second Quarter Results

• Net income was $36.7 million down 79.0% compared to Q2 2006.
• Pre-tax land write-downs totaled $119.7 million up 897.5% compared to Q2 2006.
• Earnings per share declined 66.7% as compared to Q2 2006.
• Total revenues were $1.17 billion down 18.75% compared to Q2 2006.
• Net signed contracts were $1.17 billion down 25% compared to Q2 2006.
• Quarter end backlog was $4.15 billion down 31.6% compared to Q2 2006.
• Signed contracts was 2031 down 14% compared to Q2 2006.

Current 2007 Projections

• Deliver 6100 – 6900 homes (prior estimate 6000 – 7000).

A Closer Look at New Home Sales

Let’s take another crack at making some sense of the numbers released in yesterday’s New Home Sales Report.

The most notable figures released in the report were the 10.9% decline in median selling price and simultaneous 16.2% jump in the number of sales.

Revisions notwithstanding, these figures seemed to indicate that declining prices are now driving greater number of sales.

Although it’s likely true that lower prices are, in fact, spurring on sales, it’s important to look at the distribution of sales activity in order to gain a truly accurate sense of how the housing markets are changing.

It’s also important to understand that the “headline” new home sales number is essentially an estimated count of the number of homes sold during a given month regardless of price.

As we all know very well, home prices have increased dramatically in recent years, and new homes, especially in the bubbliest markets, are very expensive.

In order to really understand what’s happening in the market, as well as make the sentiment and results provided by luxury homebuilders like Toll Brothers (NYSE:TOL) and Hovnanian (NYSE:HOV) “jive”, we need to examine the home sales results by particular price ranges.

Luckily, the Census Department also publishes the price range breakdown and sales counts of the home sales that are used to formulate the overall “headline” total home sales number.

First, let’s examine the following chart that shows home sales counts for four separate price ranges since January 2000 (click ALL charts for larger versions).

Note, the data has been smoothed using a six month moving average so as to make the trends a bit more obvious.

Notice that in 2000, the majority of new homes sold were priced at or less than $150,000 and the minority of new homes sold were priced at or above $300,000.

Notice also, that some time in 2005, this relationship reversed.

That is, in 2005, the distribution of home sales exactly flipped, the lowest priced homes showed the lowest number of sales while the highest priced homes showed the highest number of sales.

Although, this change can obviously be explained by a number of factors including increasing prices, changes in buying patterns and builder products, it represents an important shift in the market that may, or may not be fundamental and long lived.

Now, look at the following chart which shows the same four price ranges, unadjusted and un-smoothed, since January of 2006.

Notice that during the course of the housing slowdown, the numbers of homes sold in each price range appears to be beginning to converge.

That is, the number of homes sold in the top two price ranges are trending down while the number of homes sold in the bottom two prices ranges are flat to recently trending up.

This may indicate that the distribution flip that occurred in 2005 and still exists today, is likely in the process of reverting.

Notice also, that April 2007’s data showed the largest simultaneous decline in the top two ranges and “incline” to the bottom two.

This explains why there was such a dramatic increase in sales and simultaneous decline in median price.

There was a surge in the number of new homes sold below $199,999 and a slump in homes sold at or above $200,000.

Another way to look at this data is to visualize the “market share” of homes sold per each of the four price ranges.

The following chart shows the share of each price range out of a total of 100% of all unadjusted new home sales.

Notice again how the market share has changed since 1999 when the lowest priced homes showed the largest percentage of home sales and the highest priced showed the smallest.

Also note that in April 2007 (all the way to the right), the bottom three ranges are increasing in market share while the share of homes sold at or above $300,000 is decreasing.

Aside from all this, let’s remember that, in general, new homes, particularly the “McMansions” commonly seen in the luxury developments of the nations bubbliest areas, are very expensive.

In order to really make the new home sales numbers “jive” with the outlook and results reported by home builders like Toll Brothers (NYSE:TOL), Hovnanian (NYSE:HOV), and KB Home (NYSE:KBH) we are going to need look ONLY at the top price range of homes priced at or above $300,000.

As you can see, there was a considerable expansion of homes sold in the top price range which peaked in August of 2005 and has been heading down precipitously ever since.

New Home Sales: April 2007

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for April showing an unexpected “surge” in new home sales.

Probably the most notable figure in today’s report was the 10.9% decline to the median home price, the largest decline since December 1970, further reflecting the weakness brought on by the inventory oversupply and continued reduced demand.

It’s important to note, however, that with this report the Census Department revised every month back to January 2005 as formally imputed permit data, a factor in the new home sales estimate, was replaced with actual data.

This, as well as other factors, effected both sales and price data, including a 22% downward revision to the March 2007 reported median home price providing further evidence that some caution should be used when interpreting this report.

The following charts illustrate the revisions to sales and median price published in today's report (click for larger versions).

As with prior months, on a year-over-year basis sales are still declining in the double digits at 10.6% below the sales activity seen in April 2006.

It’s important to keep in mind that these declines are coming on the back of the significant declines seen in 2006.

This should not be understated as it is clearly showing continued and even accelerating weakness to new home sales.

The following charts show the extent of sales declines seen since 2006 as well as illustrating the further declines 2007 is showing on top of the 2006 results (click for larger versions)

Note that the last chart essentially combines the year-over-year changes seen in 2005 and 2006 and shows sales trending down precipitously as compared to the peak period.

Look at the following summary of today’s report:

National

• The median price for a new home was down 10.9% as compared to April 2006.
• New home sales were down 10.6% as compared to April 2006.
• The inventory of new homes for sale declined 4.8% as compared to April 2006.
• The number of months’ supply of the new homes has increased 4.8% as compared to April 2006.

Regional

• In the Northeast, new home sales were up 43.1% as compared to April 2006.
• In the West, new home sales were down 25.4% as compared to April 2006.
• In the South, new home sales were down 3.4% as compared to April 2006.
• In the Midwest, new home sales were down 28.1% as compared to April 2006.

BNN - MUST SEE TV!

Today brings six great additions to the BNN lineup, most notably, a Nightly Business Report interview with Federal Reserve’s Michael Moscow in which he admits, in so many words, that the housing decline has been more significant than the Fed had anticipated last year.

“As we move through this year, I would expect to see the housing market stabilizing, but no one can say exactly when that’s going to happen. I had thought it was stabilizing toward the end of last year as well and then we had some numbers that turned out to be worse than expected.”

Watch Moscow backpedal on BNN!

Next up there is News Hour interview with Treasury Secretary Henry Paulson in which he states that the US has experienced a “major” housing correction that was inevitable after years of historic gains. “That correction has now been significant, we think it is near the bottom, it will take a while to work its way through the system.” Unfortunately, Paulson only reiterates the same guidance he offered last year prior to the housing market taking another major leg down.

Watch Paulson call the bottom again on BNN!

Then there was Bernanke’s latest take on the subprime meltdown. Although Bernanke underestimated the extent to which the mortgage market would slide, he continues to present an optimistic outlook.

“How will developments in the subprime market affect the evolution of the housing market? We know from data gathered under the Home Mortgage Disclosure Act that a significant share of new loans used to purchase homes in 2005 (the most recent year for which these data are available) were nonprime (subprime or near-prime). In addition, the share of securitized mortgages that are subprime climbed in 2005 and in the first half of 2006. The rise in subprime mortgage lending likely boosted home sales somewhat, and curbs on this lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters. Moreover, we are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable-rate loans face interest-rate resets. All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

Watch Bernanke talk containment on BNN!

Next, we have an excellent segment where Marc Faber, founder and managing director of Marc Faber Ltd outlines all the assets, sectors and regions in which he sees bubbles. In an era of historic liquidity, it’s not surprising that there are price bubbles in virtually every asset. Faber suggests that “everything will come down and massively so.” Additionally, Faber sees the whole global bubble scenario resulting from the inflation of the US housing bubble.

“The global liquidity was fueled largely from the American current account deficit, coming largely from the trade deficit, coming largely from US consumption, which was driven from the asset inflation in the US, most notably the housing market.”

Watch Faber talk Bubbly on BNN!

Next, Mortgage Bankers Association Chairman John Robbins discusses the subprime meltdown suggesting that the extent of the mess has been “oversold”. While pointing the finger squarely at predatory lenders for their obvious role in the current meltdown, Robbins adeptly downplays the possibility of any spillover and grater effects on the general economy.

“[the subprime meltdown] is certainly not expected to cause any great pain to the financial markets and shouldn’t bleed over to a great degree.”

Watch Robins spin on BNN!

Finally... Want to get cash out of your home without those pesky monthly payments and interest charges?

This CNBC segment features a new home equity product from Rex and Co. that allows homeowners to “borrow” against the future value of their home. That’s right! You get cash now, no payments and when you sell, you return the favor.

Watch and learn at BNN!

Toll’s Dirty Dance

Ouch!

Things have not gone well for Toll Brothers (NYSE:TOL), certainly not nearly as well as CEO Bob “Dancing on the Bottom” Toll had anticipated as 2006 drew to a close.

Back then, an optimistic Toll had suggested that the housing downturn may likely have bottomed.

“Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above.”

Furthermore, at that time Toll Brothers announced that they budgeted an additional $60 million to account for all pretax write-downs for the entire year of 2007, an allotment easily surpassed by the $96.9 million actually required for only the first quarter of 2007.

Now, Toll has announced an additional $90 million to $130 million in pretax write-downs for just Q2 2007!

That brings the total of pretax write downs to somewhere between $186.9 million to $226.9 million for just the first half of 2007, a truly astounding number compared to the $152 million in write-downs taken in all of 2006.

As for the dancing, Toll now suggests that things have taken a turn for the worse.

“Virginia came back… remember when I had said, either last quarter or the quarter before that that we were dancing off the bottom.. or something opaque like that, in the northern Virginia, Maryland, Washington DC market. The market continued to improve, not much but a little bit, and [now] it’s back down a little bit.”

As for additional impairment write-downs soon to come from obviously poorly purchased property such as a very large parcel Toll purchased on the outskirts of Las Vegas in January 2006, Tool responded:

“The real answer is, you haven’t reached the point where can prove to your auditors that the value isn’t there and therefore has to be written down in order to show a profit. I mean, you could argue all day that Vegas is slow and this property is going to come on the market in 09 and if things are in 09 as they are today, when we open it, we’ll be hard pressed show a profit and they’ll want to get vary exact and say ‘hard pressed quite do it’. You’ve got to show that you’re below the line.”

When asked about his outlook for the housing market in Florida, Toll replied:

“Nice place to play golf in the winter, but not a great place to sell homes right now. There are probably great opportunistic land deals in Florida, the problem is, sometimes half-price ends up to be twice-price.”

When asked if he thought there would likely be additional future reductions of “head-count” (layoffs) Toll responded:

“I prefer to call it overhead, and the answer is yes. We haven’t stopped, but we will be looking even more seriously at reducing overheads where sales paces are reduced.”

When asked to “grade” the different markets across the nation, Toll responded:

“In our northern territories, Massachusetts and Rhode Island are ‘F’. Connecticut is a ‘B+’. New York exurbs are ‘B+’, New York urban which for us is Queens, Brooklyn and Manhattan are a ‘B+’ if not an ‘A’. Jersey City and Hoboken are a ‘B+’. New Jersey suburbs, oddly enough when you juxtapose them against the New York suburbs ... you got an ‘F’, it may be due to the tax situation in New Jersey, Michigan is an ‘F’. Chicago is surprisingly still and ‘F’ market. Minnesota is a ‘C-‘ market which is a whole lot better than it was. The Philadelphia suburbs is a ‘B’ market for us. The Poconos is an ‘F’ market. The state of Delaware is a ‘C+’ market. The mid-Maryland shore, as I said earlier, is an ‘F’ market. Washington DC, northern Virginia is probably a ‘D+’ market. Raleigh is a ‘B’ market. Charlotte is a ‘B’ market. South Carolina is a ‘D’ market as in dog. Florida, central market, Orlando, we sell a lot of homes, we get the same homes back, we sell the same homes, we get the same homes back, it’s a very hard market to figure. People, I guess are renting them without ever moving in. That’s and ‘F’ market. Florida east coast is an ‘F+’ market. Florida north, Jacksonville, pretty much an ‘F+’ market. Tampa is an ‘F’. Florida on the west coast is an ‘F’. Texas is good, Austin is a ‘B’ market, Dallas and San Antonio, we’ve got a ‘C’ market because we haven’t got our product up and running as we should yet so it’s only a ‘C’ market. I suspect it’s really a ‘B’. Northern California averages to be a ‘C’ market for us, there are some pockets that are ‘B’ and some that are ‘D’. California southern market is a ‘C’ market for us. California Palm Springs is a ‘C’ market for us. Arizona … I would rate as a ‘D-‘. Vegas is definitely an ‘F’. Reno is an ‘F’. Colorado is a ‘C’.”

During the conference call, there is extensive discussion on Toll Brothers outlook for impairments as well as their methodology and criteria used to determine and take them which can be listened to in its entirety here.

Here are some of the interesting data points from today’s preliminary release:

• Total revenue totaled $1.17 billion, down 19% as compared to Q2 2006
• Quarter end backlog totaled $4.15 billion, down 32% as compared to Q2 2006
• Net signed contracts totaled $1.17 billion, down 25% as compared to Q2 2006
• Pre-tax land write-downs totaled between $90 million and $130 million
• Q2 cancellations totaled 384 compared to 436 in Q1 2007

Remember, these results are preliminary and Ill post a more complete summary of Tolls Q2 results when they become available on May 24.

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New Home Sales: March 2007

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for March showing both significant downward revisions to the results for every month since November 2006 as well as continued weakness for the March results.

Hopes for a bottom to the new home market are now surely dashed as March showed that sales were down across virtually every region, most notably the West, as well as a 27.9% increase to the months supply as compared to March of 2006.

Easily the most notable aspect of the report was the enormous downward revisions to November and December of 2006 and January and February 2007 helping to push their respective year-over-year declines further into the double-digits.

It’s important to keep in mind that these declines are coming on the back of the significant declines seen in 2006.

This should not be understated as it is clearly showing continued and even accelerating weakness to new home sales.

The following charts show the extent of sales declines seen since 2006 as well as illustrating the further declines 2007 is showing on top of the 2006 results (click for larger versions)

Note that the last chart essentially combines the year-over-year changes seen in 2005 and 2006 and shows sales trending down precipitously as compared to the peak period.

Look at the following summary of today’s report:

National

• The median price for a new home was up 6.36% as compared to March 2006.
• New home sales were down 23.5% as compared to March 2006.
• The inventory of new homes for sale declined 1.4% as compared to March 2006.
• The number of months’ supply of the new homes has increased 27.9% as compared to March 2006.

Regional

• In the Northeast, new home sales were up 18.0% as compared to March 2006.
• In the West, new home sales were down 29.6% as compared to March 2006.
• In the South, new home sales were down 25.7% as compared to March 2006.
• In the Midwest, new home sales were down 19.3% as compared to March 2006.

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New Residential Construction Report: March 2007

Popularly reported as an “unexpected rise” in housing starts, today’s New Residential Construction Report continues to indicate significant weakness in the nations housing markets and for residential construction.

In particular, housing permits, the report most leading of indicators, again indicates substantial weakness in future construction activity both nationally and across every reported region.

As predicted, housing completions are now declining significantly on a year-over-year basis indicating that the contraction in construction activity may soon be reflected by a substantial drop-off in construction related jobs as older projects reach completion and newer projects start at a far slower pace.

Now, we are well within the period in which permits and starts began to show significant weakness last year so the current double-digit year-over-year declines to those measures unequivocally indicate that the housing market has not yet stabilized.

Here are the statistics outlined in today’s report:

Housing Permits

Nationally

• Single family housing permits up 1.4% from February, down 28.4% as compared to March 2006

Regionally

• For the Northeast, single family housing up 1.3% from February, down 35.7% as compared to March 2006.
• For the West, single family housing permits up 2.1% from February, down 22.7% as compared to March 2006.
• For the Midwest, single family housing permits up 19.5% from February, down 29.1% as compared to March 2006.
• For the South, single family housing permits down 3.6% from February, down 29.6% compared to March 2006.

Housing Starts

Nationally

• Single family housing starts up 2.0% from February, down 24.6% as compared to March 2006.

Regionally

• For the Northeast, single family housing starts down 7.8% from February, down 35.2% as compared to March 2006.
• For the West, single family housing starts down 5.9% from February, down 26.7% as compared to March 2006.
• For the Midwest, single family housing starts up 35.9% from February, down 17.2% as compared to March 2006.
• For the South, single family housing starts down 0.5% from February, down 24.1% as compared to March 2006.

Housing Completions

Nationally

• Single family housing completions up 1.5% from February, down 28.9% as compared to March 2006.

Regionally

• For the Northeast, single family housing completions down 16.2% from February, down 35.8% as compared to March 2006.
• For the West, single family housing completions up 17.8% from February, down 28.3% as compared to March 2006.
• For the Midwest, single family housing completions up 7.6% from February, down 36.0% as compared to March 2006.
• For the South, single family housing completions down 3.8% from February, down 25.9% as compared to March 2006.

Keep in mind that this particular report does NOT factor in the cancellations that have been widely reported to be occurring in new construction.

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The Second Shoe

Something seems afoot…

While vetting clips for BNN last night it seemed that there was no end to the bad news for the housing market circulating the business media.

More importantly, the news was varied with respect to particular topic but perfectly unified in outlook.

First, there was the news of Lennar, the national home builder, reporting a 73% drop in profits in Q1 forcing them to cancel all earnings guidance for the foreseeable future.

"While we are primarily focused on fortifying our balance sheet, we are concurrently focused on rebuilding our profit margins. Given current market conditions, we are continuing to pursue cost reductions, SG&A savings, product redesign and proper land pricing in order to see margin improvement starting in the second half of 2007. Until we see prices stabilize, however, we will not be able to project the timing or the scope of margin recovery, or set earnings goals for the company." said CEO Stuart Miller.

Late day breaking news yielded more trouble for the nation’s home builders as it was reported that Beazer Homes USA was under a fraud investigation by the FBI, IRS, DOJ and HUD related to their internal subprime mortgage workings.

An FBI spokesman offered the following:

"there are potentially all sorts of fraud issues associated with Beazer to included corporate, mortgage, or investments in varying degrees."

Then, there was unquestionably the oddest occurrence I have yet to witness for the new home market when David Seiders, Chief Economist of the National Association of Home Builders was effectively positioned as the “Bear” in a classic Bear-Bull segment on CNBC.

Seiders again reaffirms his “ever revising lower” outlook for the remainder of 2007 currently calling for an 8% decline to new home sales for the year.

It’s important to note that Seiders, expressing true surprise about the effect that the subprime meltdown has had on his industry, has now revised his outlook four times since February.

“Late last year, early this year it really looked like housing demand had stabilized. Sales volume looked pretty stable, other indicators looked pretty good, the Fed concluded that the housing market was stabilizing… and then the entire subprime mess and everything that goes with it in terms of the mortgage market hit, and I’ve been not only following the homes sales numbers which clearly were rather disappointing to say the very least for both January and February, but also surveying the builders on an ongoing basis, both large and small, and I actually have been very surprised by the degree to which the builders say that the tightening of mortgage lending standards has already effected sales volume. We are really sort of in uncharted waters here, I think, in terms of the new leg of the weakening process and how far it will go.” said Seiders.

Next up was the January release of the S&P/Case-Shiller index again showing a precipitous and accelerating drop-off in home prices in most of the tracked metro markets.

Professor Robert Shiller had this to say about the results:

“[the index data] are a good indicator of the dire state of the U.S. residential real-estate market. The dismal growth in the 10-city composite is now at rates not seen since January 1994,"

Don’t forget to check out the S&P/Case-Shiller index tool for a dynamic visualization of the latest results for January.

Finally, there seems to be a dangerous head of steam building with respect to what the federal government’s response should be in cleaning up the home lending mess that has befallen the nation.

Multiple reports of proposed bailouts, new lending standards legislation as well as an FHA “modernization” initiative seem to indicate that we are now beyond the point at which the federal government can remain inactive.

More importantly, with many of the early presidential candidates, most notably Hillary Clinton, remarking on the subprime meltdown, it now seems likely we will soon see Congress attempt to put some teeth behind the latest rhetoric.

One can only hope that in a hectic attempt to help mitigate the massive wave of foreclosures now washing over the country, Congress doesn’t place the burden on the taxpayer to, in effect, bailout “shoddy” lenders and grotesquely wealthy Wall Street financial institutions in the name of unfortunate homebuyers.

Given all the above, I sense a bit of a “second shoe dropping” for housing.

It’s reminiscent of some of the days toward the end of last July and early August of last year when the general understanding that the spring market had come and gone with very poor results seemed to bring a general malaise over the market that was only lifted with Greenspan’s “Market Bottom” sentiment in early October.

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BNN - MUST SEE TV!

Today brings four great additions to the BNN lineup, most notably, a Bloomberg interview with David Seiders, Chief Economist of the National Association of Home Builders.

It seems Seiders is now presenting a significantly more Bearish outlook for the new home market suggesting that 30% of home builders surveyed are now suggesting that they are feeling a weakening of sales related to the tightening of lending standards.

“I was surprised… I got about a third of the respondents saying yes [that they were being effected by tightening lending] and of them… among them, a median hit on sales of about 10 percent.”

Watch Seiders turn Bearish on BNN!

Next up there is a great “point – sort of – counterpoint” between Economist Dean Baker and David Michonski, CEO of Coldwell Banker Hunt Kennedy.

Michonski, apparently suffering from all the bad news lately, has a hard time living in the here and now as he suggests that housing supply currently “balanced” and that he expects national median home prices to be up 4% by the end of 2007 and beyond putting an end to all the hubbub over the housing decline.

Watch Michonski delude himself some more on BNN!

Next, although the Fed’s Moskow doesn’t see the subprime slime spilling over to the general economy, CNBC’s Steve Leisman presents findings from a recent “risk conference” that seemingly draws an analogous “easy lending” relationship between the mortgage market and corporate derivatives.

Two other experts, who are both calling for significant spillover and looming recession, discuss the latest developments concerning Morgan Stanley’s recent decision to sell roughly $2.5 billion of New Century Financial mortgages.

Watch the sub-prime slime continue on BNN!

Finally, a nearly perfect example of CNBC “blathering clueless” as they try desperately attempt to understand the month by month changes in the housing market.

Diana Olick was so “Shocked” by the February’s New Home Sales report that her eyebrows were seen raised in surprise after the announcement.

Add to that UBS analyst Margret Whelan’s suggestion that for new homes, the spring selling season is already over (as Bob Toll previously discussed at length) and it’s just about all the two anchor-girls could take… “Come on! It’s not even April yet!” What’s a bull to do?

Watch CNBC Bulls Look Confused on BNN!

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New Home Sales: February 2007

Today, the U.S. Census Department released its monthly “New Residential Home Sales” report for February showing both dramatic downward revisions to November, December of 2006 and January 2007 as well as continued weakness with February’s results.

As was noted before, Bob Toll, who was formally calling a bottom in the new home market, recently clarified both his outlook as well as the general misunderstanding that the spring market will bring the highest numbers of new home sales.

“Most of the markets are having a difficult time. The primary reason is the oversupply left by speculators and investors who got caught up in the mania of the price increases that were brought to the market by the extra demand created by the speculators and investors.”

“… the Spring selling season is over, it’s a misunderstanding that we have been unable to correct over the past 40 years. In the new home business, you start selling immediately after the holidays… then you continue to run-up from after the Super Bowl to Presidents Day weekend… That’s the peak of the market… When you stepped back and looked at it [it was] no where near where it should have been if you were looking at an average of the last 10 years.”

So, if we are to take Toll at his word, February’s results should represent either the peak or near the peak of monthly sales for 2007.

This is clearly not a good sign for the new home market as February’s report showed that sales were down across every region, most notably the Northeast, as well as a 26.6% increase to the months supply.

But probably the most notable aspect of the report was the enormous downward revisions to November, December and January helping to push their respective year-over-year declines into the double-digits.

So, we are now continuing to see significant declines on a year-over-year basis as compared to 2006.

It’s important to keep in mind that these declines are coming on the back of the declines seen in 2006.

This should not be understated as it is clearly showing continued and even accelerating weakness to new home sales.

The following charts shows the extent of sales declines seen since 2006 as well as illustrating the further declines 2007 is showing on top of the 2006 results (click for larger versions)

Look at the following summary of today’s report:

National

• The median price for a new home was down 0.03% as compared to February 2006.
• New home sales were down 18.3% as compared to February 2006.
• The inventory of new homes for sale increased 1.5% as compared to February 2006.
• The number of months’ supply of the new homes has increased 26.6% as compared to February 2006.

Regional

• In the Northeast, new home sales were down 36.9% as compared to February 2006.
• In the West, new home sales were down 5.7% as compared to February 2006.
• In the South, new home sales were down 17.1% as compared to February 2006.
• In the Midwest, new home sales were down 32.2% as compared to February 2006.

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New Residential Construction Report: February 2007

Popularly reported as showing a “bounce back” to housing starts, today’s New Residential Construction Report continues to indicate significant weakness in the nations housing markets and for residential construction.

Although it’s a widely held belief that the best selling season is the spring, leading some to look for signs of strength later the year, it may be that this report is showing us the best numbers we are going to see for residential construction in 2007.

As Bob Toll recently recounted, the period between January and Presidents day weekend is considered the “hot” selling season in the new home market and by his account this year was a “bust”.

“Well the Spring selling season is over, it’s a misunderstanding that we have been unable to correct over the past 40 years. In the new home business, you start selling immediately after the holidays.. it increases in number and then there’s a pretty substantial jump right after the Super Bowl because ‘she’ hasn’t been able to get ‘him’ out of the seat to go and see the product on Sunday, which is our big day, then you continue to run-up from after the Super Bowl to Presidents Day weekend… That’s the peak of the market… We have had this substantial jump from the December sales into January, we had this substantial jump from January into February but that jump cam no where near on a per-community basis to what it’s been on an average over the past 10 years.”

Today’s report shows permits and starts down high double-digits both nationally and in every region with completions now accelerating to the downside as had been widely speculated.

In fact, the report shows that completions from January as well as on a year-over-year basis are now declining in every region with particularly steep declines as compared to February 2006.

Further significant declines from here on out would unequivocally indicate that the housing market has not yet stabilized.

Here are the statistics outlined in today’s report:

Housing Permits

Nationally

• Single family housing permits down 3.1% from January, down 32.9% as compared to February 2006

Regionally

• For the Northeast, single family housing down 23.8% from January, down 38.9% as compared to February 2006.
• For the West, single family housing permits up 4% from January, down 30.0% as compared to February 2006.
• For the Midwest, single family housing permits down 16.9% from January, down 43.2% as compared to February 2006.
• For the South, single family housing permits up 1.4% from January, down 30.3% compared to February 2006.

Housing Starts

Nationally

• Single family housing starts up 10.3% from January, down 32.7% as compared to February 2006.

Regionally

• For the Northeast, single family housing starts down 26.0% from January, down 37.2% as compared to February 2006.
• For the West, single family housing starts up 37.4% from January, down 35.9% as compared to February 2006.
• For the Midwest, single family housing starts down 19.3% from January, down 52.3% as compared to February 2006.
• For the South, single family housing starts up 16.4% from January, down 23.5% as compared to February 2006.

Housing Completions

Nationally

• Single family housing completions down 11.3% from January, down 23.1% as compared to February 2006.

Regionally

• For the Northeast, single family housing completions down 24.1% from January, down 16.4% as compared to February 2006.
• For the West, single family housing completions down 10.9% from January, down 38.0% as compared to February 2006.
• For the Midwest, single family housing completions down 20.4% from January, down 36.4% as compared to February 2006.
• For the South, single family housing completions down 6.6% from January, down 11.5% as compared to February 2006.

Keep in mind that this particular report does NOT factor in the cancellations that have been widely reported to be occurring in new construction.

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Dancing with Toll

Yesterday, Toll Brothers executives were out in force, stumping simultaneously at two separate investor conferences.

First, there was the UBS US Home Building and Building Products Conference which featured several panels of home builder and product COOs and CFOs speaking about their respective companies as well as the outlook for the housing market.

In somewhat of a reversal of prior statements made by Bob Toll, Fred Cooper, Senior Vice President of Toll Brothers suggested the following regarding the effect of the sub-prime mortgage market had on housing demand:

“In 2004 2005 suddenly you had a ratcheting up of demand … so you had home price increases that were very rapid. As it turns out, in retrospect, a bunch of that home price increases were being fueled by speculators and I expect when the dust settles its going to turn out that a lot of the speculators were being fueled by the sub-prime mortgage market because they would be able to control five or six homes at a time without having to put up much capital.”

When asked about the credit quality of Toll Brothers buyers, Copper responded:

“Our buyers typically borrow just a little bit North of 70% of the purchase price of their homes so they’re not really overstretching. I would say 1% to 2% of our buyers use sub-prime and they generally use it for a bridge.. so it really wasn’t a big factor in our buyers buying ability. ”

Formally, Bob Toll made statements downplaying the effects that sub-prime mortgage lending had on their sales, suggesting that Toll Brothers buyers generally aren’t sub-prime buyers although he did note that there were quite a few investors buying Toll Brothers homes during the housing run-up.

Possibly the reality is somewhere in the middle whereby those who bought Toll Brothers homes for their primary residence generally used prime or Alt-A funding but speculating investors used sub-prime loans as Cooper suggested.

Cooper later makes the following statements:

“To say that we were wrong in 2004 2005… I don’t think we were wrong, we went from $400 million in profits to $800 million in profits and I don’t think that we would have wanted to forego those… Well I think what we missed was, I think we misjudged how impactful the speculators were.”

Listen to the entire presentation and Q&A here with Fred Cooper here.

Simultaneously, Robert Toll, CEO of Toll Brothers addressed Citigroup's Small & Mid-Cap Conference where stated that “housing is in a considerable slump”.

“Housing is a market of sub-markets and really shouldn’t be spoken about in general. Some markets are knocking them dead right now but their few and far between. Most of the markets are having a difficult time. The primary reason is the oversupply left by speculators and investors who got caught up in the mania of the price increases that were brought to the market by the extra demand created by the speculators and investors.”

Toll then goes on to play out a strange fictional scenario to demonstrate that in some markets, Toll is actually attempting to prove to buyers, with a little tough love, that there really is more demand than they think.

“somebody will come to the office and say ‘Ill take it but I need $10,000 more in incentives’… we’ll say ‘no’ and they’ll say ‘well I’m very sorry’ and they leave. Then they come back next week.. ‘how we doing…’ and we say ‘well I’m very sorry we’re doing well but we’ve had a two thousand dollar price increase and we are still maintaining the same incentives’ but we have posted a price increase because we want to show the market that we have more demand than the market believes we have and then that person will buy.”

Later, when asked to elaborate on these selective price increases during this spring selling season Toll offered this telling analysis:

“Well the Spring selling season is over, it’s a misunderstanding that we have been unable to correct over the past 40 years. In the new home business, you start selling immediately after the holidays.. it increases in number and then there’s a pretty substantial jump right after the Super Bowl because ‘she’ hasn’t been able to get ‘him’ out of the seat to go and see the product on Sunday, which is our big day, then you continue to run-up from after the Super Bowl to Presidents Day weekend… That’s the peak of the market… We have had this substantial jump from the December sales into January, we had this substantial jump from January into February but that jump cam no where near on a per-community basis to what it’s been on an average over the past 10 years.”

“As a matter of fact, it was probably as bad in traffic as a half, which is terribly down, now this is on average… the Spring selling season, or the prime selling season is pretty much a bust on a per-community basis.”

“When you stepped back and looked at it [it was] no where near where it should have been if you were looking at an average of the last 10 years.”

Then Toll goes on at length about speculators and the sub-prime market:

“By the way, speculative investors have not left the market entirely. There are still speculator investors that are now circling the market as the buzzards would on the carcass because prices have gone so far down on standing inventory that investor speculators are doing anything they can to try and get an additional incentive on that property and to buy it with as little as possible which was made possible by the idiocy of the sub-prime market until very recently. But it’s not done yet.”

“Sub-prime originators will struggle to continue to deliver sub-prime product because if they can’t they’re out of business, and before they go out of business they are just going to continue as hard as they can to be able to produce no-doc loans 100% financing… speculators eat this up.”

In a funny conclusion, Toll delivers another dancing anecdote:

“I remember in 1974 literally having to dance on top of the desk of the Third Federal CEO Mr. Greenberg who said if I got up and danced on his desk he would give me three mortgages so that I could take them and sell homes. Those were tough times… We may get there… I hope we don’t but we’re certainly not there right now.”

Listen to the entire presentation and Q&A here with Bob Toll here.

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