Toll Brothers post further losses and mourn the loss of the Jumbo Loan

Toll Brothers posts second quarter loss

Luxury home builder, Toll Brothers Inc, posted a second quarter loss of $83.2 million on sales of $398.3 million yesterday. No surprises there and the results are well within analyst’s estimates, which does not seem to suggest the decline in real estate is slowing just yet. Sales this quarter were down 47% from last year and orders are down 27%. The average selling price also fell 7% to $615,000.

Many of the up-market luxury builders in this price range must be mourning the loss of the jumbo loans. Despite raising the limit of conforming loans back in 2008 to $729,750 and Toll Brothers dropping prices to within this range, financing is difficult, and refinancing home loans is even more so in the current environment. Typical interest rates for these jumbo loans are still far in excess conforming loans, usually 6.5-7%, meaning even when buyers are found they are unable to raise financing.

I don’t see the government being in a position to prop these loans up in quite the same way they have done in the smaller loan market, and considering the amount of defaults likely this year and next on the existing generation of jumbo loans, I have a feeling the McMansion segment of the market is going to see a lot more pain.

Tagged as: jumbo loans, luxury home builder, McMansion, refinancing home loans, refinancing jumbo loan