00:00Why is Toll Brothers suffering? I mean, you'd think in the grand scheme of things that at least luxury home
00:05building could be doing OK in this environment.
00:07Well, I mean, we do know that we're in this space right now in the United States where we have
00:11years of underbuilding, but we still have intense demand.
00:14But what still remains a constant for a lot of people is high prices.
00:19And so, as you mentioned, of course, we do have Toll Brothers, which focuses specifically on the luxury market.
00:24But they're still seeing the impact that we're seeing from this sluggish housing market.
00:28If you take a look at the U.S. 30-year mortgage rate right now, it's sitting at about 6
00:32.1%.
00:32Now, this is still near the lowest level in nearly a year, but it's still well above those post-pandemic
00:39lows that we did see for mortgage rates where this was back in 2021 where everyone was buying a house.
00:44That was a perfect time to get a 30-year mortgage. Right now, not so much for a lot of
00:48people.
00:49I feel like every now and then you see these tiny little green shoots and you think maybe housing is
00:52going to come back to your point.
00:53Mortgage rates coming down, a new residential construction, the U.S. data that was just out at a five-month
00:58high in December.
00:59So, what is Toll Brothers saying and what are their peers saying?
01:02What will it take for buyers to come back?
01:04So, what a lot of analysts are focusing on, what they have been focusing on for quite a while is
01:08incentives.
01:08I mean, when we think about a lot of the metrics that we tend to keep an eye on for
01:12homebuilders, it's certainly gross margin.
01:14We talked about orders here, quarterly orders, missing expectations.
01:17But another thing that they've been keeping an eye on since the pandemic really closely is incentives.
01:22They're trying to lure in buyers to woo them and say, hey, come to us.
01:26It's time to buy a new home.
01:27We're going to give you maybe a buy-down on your mortgage rate by 1%.
01:30Maybe they give you a free laundry machine.
01:32They're trying to do different things to, of course, stand out amongst competition.
01:36But, of course, in turn, that's actually weighing on margins.
01:40And that is what a lot of investors and analysts still remain concerned about during this time.
01:44Can rate cuts save them?
01:46We'll have to see.
01:47I mean, I think also we have to think about the fact that with rate cuts, it does take a
01:50little bit longer to trickle into the mortgage rate space.
01:54So, we'll have to see how they're able to continue to navigate this space.
01:57But that's why you're certainly seeing a lot of homebuilders declining off of this news from Toll Brothers.
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