The chief executive officer of Toll Bros. Inc. acknowledged yesterday what many in the housing industry have long feared. Speculators helped fuel the housing boom, and now they’re trying to unload homes in a weakening market.
“In 2005, demand for new homes in many markets was propelled to unsustainable levels by speculative buying,” Bob Toll said in a quarterly earnings conference call. “We are now on the other side of that slope.”
Always expect overcorrection in any market. The crowds are usually late to the party. By the time everyone hears about a great area to invest in it could be too late. Theses last investors get caught and they start spreading rumors of how bad the market is and down goes the spiral. Also rising interest rates will scare off potential buyers who will want to wait until rates go back down.
Well, he’s right but since Toll Bros. warned about their earnings he’s probably looking for a scapegoat. Investors are easy targets. Did he mention that his company was responsible for selling to them at ever inflating prices? I don’t remember him saying, “Geez, we keep selling at higher and higher prices, that will be a problem later.”
I posted this prieviously in another forum but it speaks to this topic:
Most new investors have no sense of the history of real estate markets. Bill Joy, co founder of Sun Microsystems, once refered to the internet bubble as a time of “upside panic”, a time when lots of people were afraid of missing out. I’m afraid that is what has been happening in the RE market. Lots of people have made a ton of money and new investors want in on it too. Look at all the new investors and the proliferation of new RE gurus marketing to these new investors. And all the while not seeing the cracks appearing in the RE market. I fear that many of these new investors will be tomorrows motivated sellers or even worse, have to walk away from their “investments”. I hope I’m wrong, time will tell.
You mention Toll Brothers. Toll Brothers stock has been going down steadily for 6 months. It’s down about 40% or so. The builder stocks are a good leading indicator for the health of the RE market as a whole.
Occasionally we need to step back and look at the whole forest, not just the trees that come our way.