Taking Its Toll?

This is a partial transcript from "Your World with Neil Cavuto," August 25, 2004, that was edited for clarity.

NEIL CAVUTO, HOST: Toll Brothers’ profits surging 56 percent in the latest quarter on strong demand for its luxury homes. Revenue jumping 46 percent to more than $1 billion. But there could be some clouds on the horizon for the housing industry.

New home sales dropping nearly 6.5 percent last month as mortgage rates were creeping higher. So why isn’t my next guest concerned? Well, let us ask him.

Joining us now is Robert Toll, the chairman and CEO of Toll Brothers.

Robert, good to have you.


CAVUTO: I’m fine. Things look good for you. And despite all the crape hanging out there for the housing industry, what is going on here?

TOLL: Well, from our point of view, it is heaven all over again. We just keep selling houses, we see strong demand. And I think that the economy, between the national figures and the figures for our company, and for the other major home building companies, comes about because of our ability to control the land, to get it entitled and to be able to bring it to market.

I think the numbers that you are seeing given to you by the Commerce Department are more a reflection of the limit of entitled land than they are of the ability to sell it. That is why you have the prices going up so fast.

CAVUTO: All right. Now, it is interesting to note here that there had been a concern that the run-up in short-term interest rates would take buyers out of the market. I think for many of them it has taken them off the fence. But how long do you see that continuing?

TOLL: Yes, I agree with you. I think exactly the opposite impact comes from a run-up in rates.

As the rates go up, people rush in so they don’t get frozen out of the market. As the rates go down, which happened this month, you’ve got more time to make your decision. You don’t have to rush and you can stay home and watch the Olympics.

CAVUTO: All right. Now, a lot of the people who are staying home are staying home in your fancy conservatories and all those extras that you add on there. That’s where you get a lot of your money.

I think you’re looking at an average sale price north of $600,000. That ain’t too shabby. How long do you see that continuing?

TOLL: If you look at the history that you have in Europe and in the U.K., which has long experienced "not in my backyard politics" -- and I don’t mean to denigrate those who don’t want to see something built in their backyard -- very few of us do want to see it. But what it has resulted in, in Europe and the U.K., is such a constraint on housing that you can’t get into a house until you are, on average, 40 years old. And, on average, it takes 40 to 50 percent of your income. What has happened, of course, is that housing prices have chased up as the demand has increased and the supply has been constrained.


CAVUTO: So you see that continuing?

TOLL: I see that in the United States.


TOLL: I’m sorry?

CAVUTO: You see that continuing, in other words the phenomenon where demand exceeds supply?

TOLL: Yes, I do. Sure.

CAVUTO: All right. Bob, thank you. Always good having you.

TOLL: A pleasure.

CAVUTO: All right. Bob Toll, the man behind Toll Brothers.

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