Even luxury homebuilders can feel a pinch as the nation grapples with high home prices.
Toll Brothers, the Fort Washington, Pennsylvania-based firm that builds attached and detached single-family homes, reported mixed quarterly results Wednesday due to softer sales in markets including Jacksonville, Florida, and Portland, Oregon.
“While demand has remained healthy in many of our markets and particularly at the higher end, affordability constraints and growing inventories in certain markets are pressuring sales, especially at the lower end,” CEO Douglas Yearly said on an earnings call.
Toll Brothers’ average home is priced at $925,000, and its low end is about $600,000, according to the company. Although nearly 30% of the builder’s customers are first-time homebuyers, they tend to be on the older, affluent end of the demographic.
Other U.S. homebuilders have noted that affordability concerns — such as rising home prices, potential tariffs, increasing construction costs and mortgage rates — have impacted sales of lower-priced homes aimed at first-time homebuyers, and Toll Brothers’ sales reflect how these factors also affect the higher-tier.
The affordability issue dragged down national homebuilder sentiment to a five-month low amid potential price increases threatened by looming tariffs on Canada and Mexico, according to the National Association of Home Builders/Wells Fargo Housing Market Index released Tuesday.
Some of the nation's largest homebuilders, including D.R. Horton, Lennar, PulteGroup, and Taylor Morrison, have all seen their stock prices drop amid a week of challenging headlines for the industry. Toll Brothers’ shares down sank nearly 6% Tuesday.
To counter the pressure on sales, Toll Brothers plans to pull back on speculative homes — those without a buyer lined up — in some markets. But the current rate of speculative homes under construction exceeds the typical rate seen in recent years, Yearly said on the call.
The pullback coincides with a drop in single-family housing starts in January, according to the Census Bureau’s Survey of Construction, released Wednesday. Starts were 9.8% lower in January from December.
“We are actively managing our spec starts and will adjust them on a community-by-community basis, based on local market conditions,” said Yearly. “This will mean fewer starts in some communities where inventories are building, and may mean increased starts in other communities where demand has been strong. However, on a net basis, we do expect to reduce overall spec starts in the near term.”
In addition to Jacksonville and Portland, Yearly went on to specify Toll Brothers’ weaker markets as Tampa, Florida; San Antonio; Phoenix; Reno, Nevada; and Salt Lake City. On the other hand, the strongest markets were Boston; Atlanta; Houston; Dallas; Boise, Idaho; Denver; Las Vegas; and all of California.
Toll Brothers’ sales revenue in the first quarter dropped 5% from a year ago, though contracted homes were up 13%. Yearly said a miss on net income resulted from a delay in the sale of an apartment building, but homebuilding operation expectations were met.