Thursday, April 23, 2009

Toll Brothers President is out of touch

Bob Toll told Mad Money's Jim Cramer yesterday that he sees 80% of the country's real estate market's improving over the course of the next 8 months.


Maybe someone should take Mr. Toll on a cab ride through such cities as Compton, CA, Las Vegas, NV, Phoenix, AZ or Miami, FL after he spends a few minutes driving through Detroit. For anyone, especially the head of a publicly owned luxury construction company to say that real estate markets will be improving anytime soon is disingenuous at best and an attempt to shore up his company's home sales and stock values at worst.

With over 8 million mortgages about to see their interest rates reset over the next 18 months there is NO WAY IN HELL the market is about to recover anytime soon. I suspect it will take at least 3 years to clear up the inventory of foreclosures and about the same amount of time to bring down the inventory of existing homes back down to sustainable levels.

It will take 5-7 years or more for prices to begin increasing again and by then, we should be right in the middle of a hyper inflationary cycle which means mortgage rates will be mostly unaffordable to the average buyer.

The situation is completely without any positive indicators at this time and for Mr. Toll to go on CNBC to try to give his company';s sales a bump is, well, like all the other big businesses lying to us about how rosy things will be again by early next year. It's bullshit at best and criminally misleading at worst.

I have many friends that had been working at Toll as middle managers for years. All but one lost their jobs and Toll is still cutting. In the meantime, the company is offering huge discounts. You don't discount unless you feel the need to do so. His words and expressed opinions as the head of a publicly held corporation must be considered carefully by the SEC as do so many other CEOs who have made ludicrous comments about the state of their businesses over the past 12 months.

If you're in the market for a house - WAIT. Prices will continue to drop and so will interest rates. Wait until the late fall or winter of 2009 when the markets usually slow down naturally. The deals will be even better 8 months from now given the continued steep decline in the economies of the world.

What do you think?

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