This is a partial transcript from Your World with Neil Cavuto, March 12, 2002. Click here for complete access to all of Neil Cavuto's CEO interviews.
NEIL CAVUTO, HOST: Housing has certainly been a big, big saving grace for the American economy over the past year and then some, and certainly throughout this war on terror. That surprised a lot of folks. The people behind much of this growth include some of the nation's largest homebuilders. We wanted to get their take on the economy and where we're headed next. So we decided to call them and they all responded.
Joining me now for an unprecedented FOX News exclusive is Larry Hirsch, the chairman of Centex. We've got Stuart Miller here, the chief executive of Lennar; Mark O'Brien, the chief executive of Pulte; and last but not least, Robert Toll, the chairman and CEO of Toll Brothers. Welcome to all.
Bob Toll, I ended with you. Let me begin with you. Your stock has been hitting all-time highs again and again and again. You recently announced a stock split in the face of a backlog of sales that are just confounding people. What is going on here?
ROBERT TOLL, CHAIRMAN & CEO, TOLL BROTHERS (TOL): We are selling houses because the demand is burgeoning with a tremendous increase in population and a tremendous increase in the demographics for that niche that we provide, the luxury home market. At the same time, the no-growth movement has created a political climate which makes it very difficult to get lot approval. So what you have is...
CAVUTO: In other words, that limits the available supply?
TOLL: Yes. You have a very limited supply bumping up a tremendous increase in demand.
CAVUTO: Do you see that happening in your neck of the woods, Stuart?
STUART MILLER, CEO, LENNAR (LEN): No question. We've seen great stability driven by strong demand. And there is no question that land is in short supply and getting shorter.
CAVUTO: But, Laurence, let me raise the worry that everyone has. Alan Greenspan has all but signaled that the next move he makes would, in fact, be to tighten. Do you worry?
LARRY HIRSCH, CHAIRMAN, CENTEX (CTX): Well, not really. You know, you have to recognize, Neil, that we really do not trade off the short end of the curve that he is dealing with. We've trade off the...
CAVUTO: In other words, the interest rates affect the control?
HIRSCH: Sure. And we trade off the longer end of the curve. And, in fact...
CAVUTO: That's been backing up lately.
HIRSCH: But not much. And it has not moved that much from last year. Our mortgage rates are about the same as last year. And when you look at the housing industry, you have three legs of the stool. You have consumer confidence, its unemployment and its rates. And if we are in an environment where we're in the midst of a recovery, and what is going to happen is we are going to see consumer confidence increasing and we're going to see unemployment going down. A little rate increase should not bother this market at all.
CAVUTO: You know, Mark, there are a lot of stock technicians who look at all of your stocks and say, well, the markets already said it cannot get much better than this. Does that become a comedown, whether it's interest rates that do it or the fact that people have bought the homes they need and the supply issues, that Bob said, notwithstanding, it is over. What do you say?
MARK O'BRIEN, CEO, PULTE HOMES (PHM): Well, I obviously think it is not over. I think that all of the points that these gentlemen made are very relevant. You know, when you look at the condition of the mortgage industry today as opposed to `91 or `92, we are in much better shape. I mean, you can today get a 30-year fixed rate loan with a put for under seven percent. That is an unbelievable piece of paper.
CAVUTO: How long do you think that will last, by the way? A lot of people always ask me, how much longer do you think rates will stand?
O'BRIEN: You know, I don't know that it's necessarily 30-year rate driven. As Larry said, you know, we have some adjustable products that are very fine mortgage products. In 1998, as an example, when the hedge fund got in trouble and long-term rates shot up, the consumer moved immediately to adjustable rate mortgages, and it was a...
CAVUTO: So, in other words, there is always a way the consumer protects him or herself?
TOLL: If we knew where rates were going to be, we'd unhook these microphones, all call our brokers and go to the beach.
CAVUTO: Well, see, but I thought were you doing that anyway.
TOLL: Trying to.
But the point that's being made is that there is such sophistication and variability to the mortgage market today that it does not depend on a 30-year, one point deal anymore. There is a seven-one arm that yesterday was six and a quarter.
CAVUTO: In other words, there are more flavors to financing so you can protect yourself, right?
O'BRIEN: Think about it in this context, because I believe, and these gentlemen I think would share this belief, that the access to capital, to the consumer's access to capital is really one of the strong underpinnings of the demand of the enjoyment we are having in profits today. I mean, we are not in the hula-hoop business. We sell houses, homes. We all live in one. We all aspire to a better one or another one...
CAVUTO: Here's where they make the hula-hoop comparison though. hit has gotten to the craze level, and that they always go back, some of those who short your respective stocks, and there are people who do that, believe it or not. They have argued that we are going back to the overbuilding days of the late `80s, when all of this burst. Do you see that?
TOLL: Neil, take a look at the housing starts. For the last 10 years, they have about been constant, at about 1 million single-family starts for 10 years. This group and others, the major home builders, have gone from about a nine- percent share of the business to a 14 and a half percent share of the business.
CAVUTO: So what do you say to people who are now deciding, you know, I am going to hold off for rates to go a little bit lower. When people tell you that, Stuart, do you just say no?
MILLER: Well, you know, we do not hear people saying they are waiting for rates to go a little bit lower. In fact, they are finding that their home is very affordable right now.
CAVUTO: See, I think they jump in when rates go higher.
TOLL: I think you are right.
MILLER: But even within a range, affordability remains strong, interest rates go up 100 basis points, 150 basis points, as we saw in the late `90s. It really doesn't affect...
CAVUTO: What is the level at which people do balk? I mean, is it eight percent?
TOLL: You know what? It depends on what side you are coming from, when it was at 16 and a half, they jumped in 12 and a half and could not get enough of it. Now, if it goes from six and a quarter back to 12 and a half, I think we're all going to be sitting not on the beach, but in dump trucks, running around earth around.
CAVUTO: Do you ever see that as a possibility? I mean, when September 11 happened, obviously, all bets were off. People didn't know. Everyone says we are one disaster away from revisiting a recession or depression, if it gets really bad, the magnitude of September 11. Do you just keep your fingers crossed, say, you know, steady as she goes?
HIRSCH: You know, I don't think any of us are macroeconomic economists, but it is hard to see. We have a Fed that is still fighting inflation. We have still the productivity gains to have in this economy. And those productivity gains really play into one of the major themes that all of us are involved in.
CAVUTO: But let's say, Larry, that productivity does not continue. Let's say, all of a sudden, Alan Greenspan apparently is worried. I think he is a bit of a sourpuss, but he worries about happy people. I think if he's worried that people are getting giddy again, he puts the brakes on maybe sooner than you think.
HIRSCH: Well, again, if the reason he is putting the brakes on is because the economy is starting to go up, that is not a bad thing for the homebuilding business. That creates employment and employment creates people who want...
CAVUTO: More than offsetting the uptick in rates?
MILLER: And hasn't this been a fairly judicious Fed that has been cautious about making big moves, taking its time to make adjustment? And aren't we more likely to see that before a big move is made, that we really have...
CAVUTO: So you guys still think he walks on water, don't you?
HIRSCH: Well, I think he's a pretty good guy. He's done a pretty good job.
TOLL: Neil, when the interest rates take off, that is when this business really starts to boom. The fact that we've had 10 great years, thank you very much, is not close to what is going to happen this time when the rates start to go up because right now, and you said it earlier, people are saying to themselves, why buy now? Why not wait? Let's see if these rates are going to go a little lower? When it is clear that rates are not going to go a little lower, when it's clear that rates are going to go a little higher, then all those people who are sitting on the fence that have seen their friends and neighbors make a fantastic investment by buying a new home, those people are going to jump.
... you're going to see a real boom.
CAVUTO: I see this certainly in your developments and all, that people are now throwing a lot of money into extras and additions, and that is where you guys make your gravy, right?
HIRSCH: You really have to look at it too, that there is a stock market in fact here, that when you look at housing, people are going back to the fact that this is a good investment.
CAVUTO: It is a hard asset versus...
HIRSCH: It's a hard asset. It's been appreciating. If you look at the last 10 years...
TOLL: And you can enjoy it.
HIRSCH: ... there's appreciation and unlike stocks, you can live it in, as opposed to stocks.
MILLER: And putting money in the bank is going to earn you about a one and a half to maybe two percent return.
CAVUTO: But can you realistically see double-digit percentage increases that we're seeing in most of the country now continuing?
MILLER: Well, given the short land supply, there is a scarcity in land out there that is driving the demand to be met with a very limited supply. I think that we are still going to see housing prices go up.
TOLL: When you say double-digit increases, what are you talking about? Double-digit increases in price of homes?
CAVUTO: In price of homes.
TOLL: Oh, definitely.
CAVUTO: You do? For a long time?
TOLL: Oh, yes.
CAVUTO: But you hope so.
O'BRIEN: I don't think it is important that we have double digits on an annual basis. I think over the longer period, you look at the `90s, the trend is clearly there. An investment in a house turned out to be worth more than an investment in the stock market over the same 10-year period. And you can live in it. Your four-bedroom house does not become a two-bedroom house, like the 401(k) did.
CAVUTO: Well, mine became just a 101(k) or something. Go ahead, Bob.
TOLL: Thirty-three million more people, says the 2000 Census, joined us from 1990. Housing starts dead flat. Something's got to give. It's going to be prices.
CAVUTO: All right. Bob, final word on the subject. Bob Toll of Toll Brothers, Stuart Miller of Lennar, Larry Hirsch of Centex, Mark O'Brien of Pulte. To the best and the brightest in that industry.
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