Robert "Jabba the Hut" Toll interview

Discussion in 'Wall St. News' started by makloda, Dec 6, 2006.

  1. so what, its down 5% y/y, up 22% in last 2-years, up 67% in last 3-years, should I go on?. Does noting that its down on the year help you make money???
    #21     Dec 6, 2006
  2. S2007S


    that doesnt always work.
    #22     Dec 6, 2006
  3. no, of course it doesn't. Does anything work everytime?
    #23     Dec 6, 2006
  4. All I know is that there is another phenomena going on in the Real Estate market that needs to work its way out before home builders can really run again. That is, there is a ton of recently build inventory (1-3 year old property) that speculators are still holding unsold and oftentimes unrented and empty. These are the same people who are intimately involved with real estate and have "buffered" all the inventory of homes that were mass produced as a benefit to the builders so they could start new projects in parallel. Speculators took these like hot-cakes at pre-construction prices and held them for a speculative flip (e.g. mortgage brokers, insurance agents, Realtors, title companies). I have been personally involved with this too and watched the entire real estate market at all service levels participate in this.

    So what do I think this means? to me it means that builders are bumping up against old inventory that THEY built but has not been absorbed yet. That old inventory, maybe 2-3 years old and "as new" and often never lived was built at a net lower cost of production (e.g. with lower land costs, lower labor costs, lower energy costs, lower material costs, lower insurance costs, lower financing costs etc.). Essentially we have a huge selling war going on between the equity gap between this older inventory and newer inventory. Frankly, I think the builders will lose this one. They do not have enough purchasing power and new sales volume to get a significant volume material discount to offset the much cheaper old inventory equity advantage that they are competing with. It's kind of funny actually to see them competing with the same goods they sold at pre-construction discount a few years earlier. Metaphorically they wove their own noose and now hang themselves with their own organizational & administrative weight (e.g. overhead) they had to put on during the years of max production.

    So now builders are trying to squeeze out margins and a profit by building ever cheaper homes on small zero lot line lots and cutting every possible corner. That makes them less competitive. So now they are trying to buy down the costs by integrating incentives and financing. But the truth is most buyers that can afford to wait it out are renting the empty large McMansions and licking their lips while sitting on the fence like buzzards. They are waiting for somone to kick over and die to liquidate at well below-cost prices. That is starting to happen now as thinly capitalized speculators holding empty inventory are caving into pressure and taking losses now or leasing out at a 1/3 net monthly loss to help carry property. Uncle Sam will pay for that subsidy as an investment and business loss credit on taxes when the sales do come in.

    barring any new major hurricanes or floods etc. I think it will take about 18 months for inventory to be sufficiently reabsorbed to let homebuilders run even at half throttle again. In the interim with no sales they can't possibly hold their staff and cover all their carrying costs to keep these companies viable without losing the competitive advantage of experienced laborers. Idle construction heavy equipment is a huge burden as well - so they will be forced to rent that or sell. This will all manifest as a future loss in productivity and profit edge even when they recover since many of these laborers and employees will move on to do other things. Then home builders will be competing for skilled labor as well as materials again but it will take a few years to get them back to the same profit levels they previously enjoyed. That means slower earnings growth and lower stock prices and a completely "different animal" of stock in my opinion. The entire PE structure of the industry could change.

    This is actually a little victory for some of the upper tier middle class. Such are now able to get into some very high end properties at a huge discounts and get a taste of the "good life" so to speak. This may leave a huge gap in price structure at the low end of older and dated homes that no one will want to buy at any where near the old prices (except for certain high costs areas). I predict a stratification and gapping of the home price structure with the low end of the middle class being trapped in dated homes. Since no one will want these prices will diminish (but tax & insurance levels will stick) and equity will go negative with no sales at this level. Those in home equity loans in these properties will be completely upside down which will have various negative consequences.

    #24     Dec 6, 2006
  5. Interesting, thanks :)
    #25     Dec 6, 2006
  6. Like basic math of cash per share, net tangible assets, liquidation value. The geniuses of the housing doom & gloom think that in this day and age think TOL is worth $5 a share when it is at least $10 in liquidation assuming over 50% discount on their inventory.
    #26     Dec 6, 2006