Tuesday, February 24, 2015

Lawler on Toll Brothers and Other Builders: Maybe Points to Strong New Home Sales in January

by Bill McBride on 2/24/2015 04:27:00 PM

From housing economist Tom Lawler: Toll Brothers: Net Orders Up 16% YOY in Latest Quarter; “Traditional” Net Orders Up 20.7%; Ex the West, Net Orders Down

Toll Brothers, the self-described “nation’s leading builder of luxury homes,” reported that net home orders in the quarter ended January 31, 2015 totaled 1,063, up 16.0% from the disappointed orders in the comparable quarter of 2014. Net orders per community were up 3.5% from a year earlier. Net orders in the company’s “traditional” home building operations totaled 1,044, up 20.7% from the comparable quarter of 2014. Home deliveries last quarter totaled 1,091, up 17.6% from the comparable quarter of 2014, at an average sales price of $782,300, up 12.8% from a year earlier. “Traditional” home delivers totaled 1,091, up 17.5% from the comparable quarter of 2014, at an average sales price of $714,900, up 2.8% from a year earlier. The company’s order backlog at the end of January was 3,651, down 0.4% from last January, at an average order price of $750,000, up 2.5% from a year earlier. The backlog for traditional building at the end of January was 3,536, up 2.9% from last January, at an average sales price of $732,000, up 4.5% from a year earlier.

Compared to a year ago Toll’s traditional net orders were down in every region save the West (Arizona, California, Colorado, Nevada, and Washington), as shown in the table below. Part of the YOY gain in the West reflected orders from lots and communities in California obtained from the acquisition of Shapell Industries, which closed last February. That acquisition included 5,219 lots in Northern and Southern California, 4,122 of which were not finished as of 8/31/2013. When asked whether the strong YOY growth in net orders in the West reflected orders associated with the Shappell acquisition or from “core” strength in the region, a company official said “it was both.” The fact that Toll’s net order (and settlement) price in the West was down from a year ago, however, suggested that a “good chunk” of the YOY order gain in the West was related to the Shapell acquisition (Shapell’s average sales price had been lower than Toll’s) – especially given management’s discussion of “pricing power” in many California markets.

  Net Home OrdersAverage Net Order Price
Qtr. Ended:1/31/20151/31/2014% Chg.1/31/20151/31/2014% Chg.
North177181-2.2%$625,100$652,900-4.3%
Mid-Atlantic224263-14.8%$659,500$623,1005.8%
South199222-10.4%$850,700$758,10012.2%
West444199123.1%$905,100$944,100-4.1%
   Traditional104486520.7%$794,000$737,8007.6%
   City Living1951-62.7%$2,301,900$1,245,70084.8%
Total106391616.0%$821,500$766,1007.2%

On the “pricing power” front, while on the December conference call officials focused on the reduction in pricing power across many of its markets, today officials seemed a touch more optimistic – although comments with vague, save that in Northern California, Southern California, the New York City area, and certain parts of Florida pricing power appeared to have improved.

Officials also said since the start of the current quarter (February 1), signed contracts were running about 13% higher than the comparable period of 2014.

And Some News from Other Builders Points to Strong New Home Sales in January (maybe)

In significantly older news but related to early 2015 home sales, KB Home reported (on February 11) that net home orders from December 1, 2014 through February 6, 2015 totaled 1,499, up 24.8% from the comparable period of a year earlier. At the beginning of its current fiscal quarter (which runs from December 1, 2014 through February 28, 2015) the company had 227 communities for sale, up 19% from a year earlier. Quarter-to-date net order value over this period was up 25.5% from the comparable year-earlier period, implying a YOY gain in net order price of about 1%.

KB Home released these preliminary quarter-to-date order numbers in conjunction with the commencement of a public offerening of $250 million in senior notes.

Meanwhile, in anticipation of management’s meetings with investors at a conference this week, Meritage Homes reported that net home orders in January totaled 606, up 48% from last January. Meritage said that net orders per community were up 24% YOY.

While it is dangerous to attempt to translate reported net orders from builders to Census’ estimates for new home sales – even when one has a lot of builder reports – my “gut” tells me that Census’ report on new home sales for January will beat “consensus.”

CR Note: New Home sales for January will be released tomorrow morning at 10:00 AM ET. The consensus is for a decrease in sales to 471 thousand Seasonally Adjusted Annual Rate (SAAR) in January from 481 thousand in December.