Toll Brothers, Inc. (TOL)

TMFEldrehad (99.99) Submitted: 9/12/06 6:25 PM

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In the short term, you may very well be correct. In the long term, however, I think homebuilders as a group are oversold and undervalued. P/E's are now in the single digits.

When looking at the housing market, I think the real question is 'bubble or no bubble'? My personal vote is for 'no bubble'. Real estate, like everything else, is governed by supply and demand - and a fair part of the recent boom, in my view, is related to population increases and permanent levels of increased demand. In markets like Southern California, there are just too many people and too few places within reasonable communting distance to live. Now, did the market get too hot and is there a potential for a fall? A distinct possiblility. A collapse? I think that the demand side of that equation won't allow that to happen. I predict home prices may well go sideways for an extended period, but I just don't see a 'bursting bubble' as demand isn't going away and will only increase.

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Jeffreyw (88.38) Submitted: 9/22/06 3:51 PM

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I think "bubble" is more likely the case in most of the US. There may be some coastal pockets in CA and FL that never go down but they will flatten for years if people can't afford to move up. Wages are leveling off. People have been cashing out of their homes with second mortgages leaving little equity in real estate. Big builders have been reducing their land assets, which tells me they do not intend to build at the same pace they have been for the last five years. The market is slowing, their profits will be dropping and investors will be bailing. Yuppies buying half-million dollar+ homes are becoming aging baby boomers and empty-nesters with smaller housing needs. Divorces are still way too high and cause many homes to be placed on the market at "whatever we can get for it!" The broken family usually has one or both moving into cheaper, used housing or renting apartments or condos. US population is growing more from immigrants than from births. Most of these large public home builders cater to the affluent, dual income families which are a shrinking source of revenue.

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staffier (31.33) Submitted: 9/23/06 1:47 AM

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Actually, mortgage rates seem to be flattening, and low compared to historical levels. Sure there's a "correction" going on, but is it really so bad as to justify a 50% decline in residential construction companies like TOL?

I think you're interest-only mortgage comment is off the mark, as well -- would you not agree that the majority of interest-only loans are taken out by middle class folks in order to afford a nicer house? Toll Brothers deals with luxury communities...I can't imagine larger mortgage payments would force bankruptcy on their clientele.

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