Toll Brothers Lackluster Q3 A Fresh Sign Of Declining Luxury Home Sales

A Toll Brothers housing development is shown in Carlsbad, California
(Photo: REUTERS/Mike Blake)

In a fresh sign of a worrying housing market in the United States, one of the country's largest luxury home builders reported a disappointing third-quarter financial result. Toll Brothers Inc. reported home sales revenues of $1.76 billion, down 8 percent from the same period last year. 

Toll Brothers reported net income and earnings per share of $146.3 million and $1.00 per diluted share compared to net income of $193.3 million and $1.26 per share diluted in the same quarter last year. The homebuilder's deliveries also declined 11 percent with only 1,994 deliveries this quarter.

The company's purchase agreement also declined 3 percent this year, disappointing group of Bloomberg analysts who expected only one percent decline from the nation's largest publicly traded luxury home builder. The biggest factor behind this was the 36 percent slump in orders in California where the most expensive home properties in the country are located. 

Toll Brothers homes in California has an average selling price of $1.74 million in the third quarter. Industry observers said the luxury home builder may be compelled to sell lower due to a number of factors with the biggest being the US trade dispute with China and government real estate regulations.  

Chinese investors accounted for a significant portion of Toll Brothers market in California. At the same time, changes in the federal tax affected property levies and mortgage interest in the country. The changes dictate that state and local taxes that can be deducted are limited at $10,000 while the mortgage interest deduction was reduced from $1 million to $750,000 in mortgage debt. 

The lowered mortgage rates have been fueling home price hikes in the previously affordable market while the luxury markets dominated by Toll Brothers are suffering from declining prices.

Toll Brothers' lackluster Q3 result followed a report from real estate brokerage Redfin that highlighted declining demand for luxury properties in the country. Sales of properties priced at $2 million and above dipped 16 percent in the first quarter of this year. That was the sharpest annual decline since 2010, according to the May report from Redfin. The slump was particularly pronounced since there was a 14 percent increase in the inventory of the luxury properties in the U.S. 

Redfin said luxury homes sold in 1,000 cities it monitored fell 1.6 percent to $1.55 million. On the other hand, price hikes of nonluxury homes were at 2.7 percent or $3000,000 on an annual basis. Redfin also pointed to changes in tax law as the biggest factor to the waning demand for pricey homes. 

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