Toll Sees Solid Demand for Luxury Homes as Mortgage Rates Fall

Patrick Clark
2 min read
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(Bloomberg) -- Toll Brothers Inc. raised its expectations for profit margins for its full fiscal year as lower mortgage rates sparked demand for the company’s luxury homes.

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  • Toll projects deliveries of 10,650 to 10,750 homes in its full fiscal year, compared with its previous forecast for 10,400 to 10,800 deliveries, according to a statement Tuesday. The company expects a full-year adjusted gross margin on home sales of 28.3%, up from its earlier estimate of 28%.

Key Insights

  • Purchase contracts for the three months through July rose 11% from the same period a year earlier to 2,490. While that missed the average analyst estimate of 2,793 orders in data compiled by Bloomberg, the company said it has seen solid traffic this month and expects that momentum to continue through the current quarter.

  • Mortgage rates have declined over the course of the summer, but that has yet to translate to a more active resale market, where listings remain scarce.

  • “With mortgage rates at their lowest point in a year and trending lower, favorable demographics, and continued imbalance in the supply and demand of homes for sale, we are optimistic that demand will remain solid through the end of fiscal 2024 and into 2025,” Chief Executive Officer Douglas Yearley Jr. said in the statement.

  • Toll’s customers tend to be wealthier, with more cash to tap than the average homebuyer. That has helped keep Toll’s demand relatively steady while sales for other builders have wavered.

  • The company’s adjusted gross margin in the quarter was 28.8%, which “significantly exceeded guidance due to favorable mix and greater efficiencies in our homebuilding operations,” Yearley said.

Market Reaction

  • Toll’s shares rose slightly in late trading. They had gained 30% this year through the close on Tuesday, outpacing the 18% increase for an S&P index of homebuilder stocks.

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  • The company will hold a conference call at 8:30 a.m. New York time Wednesday.

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