This is a partial transcript from "Your World with Neil Cavuto," May 26, 2005, that was edited for clarity.
NEIL CAVUTO, HOST: Toll Brothers (search), the maker of luxury homes, benefiting big time from the red-hot housing market, profits more than doubling in the latest quarter, blowing away estimates, revenue up 52 percent. Shares of Toll Brothers, hitting an all-time high.
U.S. housing demand, as Toll Brothers seems to indicate, won't quit, a good sign for the luxury home builder, whose quarterly profit, as we indicated here, blew away all expectations.
In Pennsylvania right now, we're joined by Bob Toll. He is the chairman and CEO of Toll Brothers.
Robert, good to have you back.
ROBERT TOLL, CHAIRMAN & CEO, TOLL BROTHERS, INC. (TOL): Thank you. Nice to be here.
CAVUTO: What's going on?
TOLL: How about that, huh? It's supply and demand again, The same thing it was the last time we got together. More buyers than sellers.
CAVUTO: Do you ever look at what's going on? And it doesn't really happen so much with single-family homes, as it's happened in some parts of Florida, Silicon Valley (search), where people are flipping properties. This applies more to condos, I grant you, but without ever moving into them, treating them like stocks, would you do that?
TOLL: Would I do it? No, I wouldn't do it. And I wouldn't recommend that others do it.
But there's quite a bit of it going on and we're very much aware of it. Some of it is even happening on the single-family detached housing. We have huge disclaimers, warnings in our first qualification questionnaire that we ask the people to sign before we go into contract. And on the contract, there's a separate document that basically says, if you're an investor or a speculator, don't buy here, unless you want to hold for at least a year.
CAVUTO: But people move, too. How can you prove that or enforce that? If someone knows that, look, buying into a Toll development and flip it without the intention of ever moving into that house, they're going to be rewarded and they're going to do it anyway.
TOLL: Well, unless our clause is enforceable and they've taken a chance of going against the clause.
CAVUTO: Is it enforceable?
TOLL: In which case, all the profits is going to come to us. But why would you go buy from us, when we've got a clause that says, don't come here? Why wouldn't you go down the street and buy from somebody else?
CAVUTO: But wait. Wait a minute. How do you enforce something like that, Bob?
TOLL: You really don't. As I just explained, Neil, I think it's the threat of the clause that drives people to go someplace else.
People don't get up in the morning looking for a fight. They're looking to make a profit. So, if one fellow has in his contract don't buy here if you're a speculator and the other fellow's contract doesn't say anything about it, then wouldn't you naturally choose the one that doesn't say anything?
CAVUTO: Well, it's a good point.
But let me ask you, Bob, as someone who's been around the housing industry for a while. In the latest period that I saw, one out of four home sales were recorded for investment purposes, in other words, not necessarily for that person to move into exclusively as primary residence. Does that alone surprise you?
TOLL: The figure being as high as one out of four for the whole nation?
TOLL: I can understand that in some of the hotter markets, like Vegas or east, west Gold Coast of Florida, New York City, or environs, but that would surprise me for the nation as a whole, because...
CAVUTO: But if it were that high — if it were — would that be a sign of froth to you and would you, as a premier builder, be worried?
TOLL: Oh, I'm always worried.
And we've seen a sign of froth in some of the hotter markets for quite some time. However, look what happened in San Francisco with the tech implosion. We lost 170,000 jobs. And that's not just eliminating the froth from speculation. That's eliminating people from a market in tremendous number.
The market went down, and, within 10 months, the market had come back to a new all-time high. And the reason is because of the spectacular demographics, the imbalance between supply and demand.
CAVUTO: All right. Robert Toll, always a pleasure. Thank you very much. Appreciate it.
TOLL: Thanks, Neil.
CAVUTO: The chairman and CEO of Toll Brothers in Pennsylvania, Robert Toll.
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