Analyzing the Housing Market's Luxury End with Toll Brothers' 3Q15 Results
All real estate is local
In its earnings release, Toll Brothers (TOL) gave a geographic breakdown of its different markets. Below are the segments in the Traditional Homebuilding Sector:
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North: Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey, and New York
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Mid-Atlantic: Delaware, Maryland, Pennsylvania, and Virginia
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South: Florida, North Carolina, and Texas
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West: Arizona, California, Colorado, Nevada, and Washington
Below is a summary of the following areas:
Northern segment
Deliveries in the North (which do not count the City Living New York City developments) increased to 287 units. Average selling prices increased from $605,700 to $629,600.
Contract signings were roughly flat at 271 units, however, average selling prices for signed contracts decreased. Backlog fell in units, but ASPs increased.
Mid-Atlantic segment
Deliveries in the Mid-Atlantic segment increased to 364 units from 319 units, however, the increase in dollars was modest due to a sizable decrease in average selling prices. ASPs fell from $635,700 to $627,200.
Contracts increased in units and dollar terms, although the increase in ASPs was muted ($628,300 versus $619,200).
South segment
Deliveries fell in unit terms, however, an increase in average selling prices from $724,800 to $780,900 mitigated the decline in dollar terms.
Contract signings fell in units to 247 from 322 a year ago. It looks like the decline in oil prices is beginning to affect demand in Texas.
West segment
Surprisingly, deliveries fell in both unit and dollar terms in the West. Even average selling prices fell. The West Coast market is doing great overall, and the Mountain states are picking up as well, especially Denver. That said, the backlog in the West is growing, which means this might have simply been a blip.
Toll Brothers has exposure to some of the hottest markets, while avoiding some of the more downbeat markets like the most of the Midwest and parts of the Deep South. The diversified builders like PulteGroup (PHM) and D.R. Horton (DHI) have seen slower organic growth than the West Coast–centric builders like Standard Pacific (SPF).
Investors who want to gain diversified exposure to the homebuilding sector can look at the S&P SPDR Homebuilder ETF (XHB).
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