Buying And Selling: Bad News Travels

"But...but...real estate prices always go up! David Lereah said so!"

There's a lot of interesting information you can get from the news of Toll Brothers' third-quarter profit drop:

"The housing market is getting weaker much faster than anybody expected," said Alex Barron, senior housing analyst with JMP Securities in San Francisco. "What's hurting Toll is just the fact that they build luxury homes. Luxury homes are very discretionary. People who want to live on the golf course, they can do so today or they can wait a year. There's no hurry."

That doesn't seem to make sense, does it? If luxury homeowners have no difficulty waiting for a home, then why is Toll Bros' having so much trouble meeting expectations? Particularly if they only build homes when there are orders in the queue? Seems more like the people who Toll Bros. caters to are getting much more bearish and not as willing to commit to big-ticket purchases...or maybe Toll was relying far more on flippers to move product than they are willing to admit.

Then you have the news that Lowe's is advertising bad tidings for the remainder of the year:

But orders for new homes have slowed in recent periods and sales of existing houses are slowing from record levels, putting pressure on sales at Lowe's and larger rival, The Home Depot Inc. Increased gas prices have also affected business, Chief Executive Robert Niblock said.

"Near-term pressures on the U.S. consumer have led to a more cautious outlook for the balance of the year," Niblock said in a prepared statement.

With less discretionary spending due to maxed-out levels of consumer debt, stagnant wages, and a cooling housing market, the ripple effect is spreading beyond the realtors to the home improvement industry now. Then the contractors, then the builders, and on and on and on...

Posted at August 22, 2006 03:24 PM

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"But...but...real estate prices always go up! David Lereah said so!" There's a lot of interesting information you can get from the news of Toll Brothers' third-quarter profit drop: "The housing market is getting weaker much faster than anybody expected," said Alex Barron, senior housing analyst with JMP Securities in San Francisco. "What's hurting Toll is just the fact that they build luxury homes. Luxury homes are very discretionary. People who want to live on the golf course, they can do so today or they can wait a year. There's no hurry." That doesn't seem to make sense, does it? If luxury homeowners have no difficulty waiting for a home, then why is Toll Bros' having so much trouble meeting expectations? Particularly if they only build homes when there are orders in the queue? Seems more like the people who Toll Bros. caters to are getting much more bearish and not as willing to commit to big-ticket purchases...or maybe Toll was relying far more on flippers to move product than they are willing to admit. Then you have the news that Lowe's is advertising bad tidings for the remainder of the year: But orders for new homes have slowed in recent periods and sales of existing houses are slowing from record levels, putting pressure on sales at Lowe's and larger rival, The Home Depot Inc. Increased gas prices have also affected business, Chief Executive Robert Niblock said. "Near-term pressures on the U.S. consumer have led to a more cautious outlook for the balance of the year," Niblock said in a prepared statement. With less discretionary spending due to maxed-out levels of consumer debt, stagnant wages, and a cooling housing market, the ripple effect is spreading beyond the realtors to the home improvement industry now. Then the contractors, then the builders, and on and on and on...