Toll Brothers to benefit from 'lousy' existing home inventory

Toll Brothers (TOL) raised its full-year sales forecast as the homebuilder stands to benefit from the low inventory problems plaguing the existing home market. It's a market Toll Brothers CEO Doug Yearley called "lousy" on the company's third quarter earnings call. Yahoo Finance Reporter Dani Romero breaks down how Toll Brothers is set to benefit from the housing situation.

Video transcript

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DIANE KING HALL: Luxury home builders, Toll Brothers, trading up more than 3 and 1/2% after reporting stronger than expected quarterly orders. The company also raising sales expectations amid the housing shortage.

CEO Doug Yearley calling out the state of the country's housing stock in the earnings call, which he says was a key driver behind the homebuilders busy quarter. Yahoo Finance's Dani Romero has more. Dani.

DANI ROMERO: Yeah, Diane. Toll Brothers CEO, Doug Yearley, didn't shy away from calling out the housing inventory and the resale market, lousy. This comes as the homebuilder plans to deliver over 9,000 homes by the end of the year with a price tag between of $1.05 million to $1.15 million.

But what are the factors weighing in to this bullish call? Well, it's a combination of strong demand and their focus on spec homes. That is a development without a specific buyer in mind. Toll delivered over 2,500 homes with a price tag of over $1 million.

Remember, Toll touts itself as an affordable luxury home builder. They sell specs at different stages of construction to give buyers the opportunity to finish their home with their preferences.

And so Toll is also really known to offer incentives, like rate buydowns, so lowering those mortgage rates, which looks really attractive when mortgage rates are hovering over that 7%. But something that on the call that the company pointed out is that that's really attracting spec buyers, the rate buydowns.

Another thing to point out is, who's scooping up these homes? They're the all-cash buyers. They made up 30-- 25% of the sales in the third quarter.

But overall, what does this say about the housing market? Well, that the newly built homes market is really looking strong, resilient. And the government data today really showed that to be true.

SEANA SMITH: Yeah, certainly. It's all about inventory, the fact that existing homes, simply there is not a lot of those homes on the market. When we talk about the inventory picture improving or even when the homebuilders are going to be able to get more homes on the market, what does that timeline look like?

DANI ROMERO: Seana, builders are going to continue to fill that gap as long as the resale market remains muted. And so we're going to see a steady influx of new homes come to the market.

But to give you some perspective, the total number of homes single family homes under construction is higher than it was pre-pandemic. And last year, it took over nine months to finish one single family home. And experts say that more inventory will come to the market over the next year.

DIANE KING HALL: Oh, hopefully so for a lot of people. I mean, that's a big issue in the housing market. Dani Romero, thank you.