Luxury Builder Toll ‘Has Room to Increase Prices’

Toll Brothers Inc., the largest U.S. luxury homebuilder, has room to raise prices on its houses as the real estate market extends its recovery, CEO Douglas Yearley Jr. says.

Buyers are purchasing properties “sight unseen” in New York and demand is strong on the coasts, Texas and in suburban Detroit, Yearley said Wednesday at The Year Ahead: 2014, a two-day conference in Chicago sponsored by Bloomberg LP.

“We have plenty of room,” to raise prices, Yearley says. “I think 2014 is going to be a great year.”

Builders are benefiting from a tight supply of existing houses on the market, which is boosting values even as an increase in mortgage rates cools demand. Toll, based in Horsham, Pa., had an average home price of $703,000 in the three months through October, up from $582,000 a year earlier. Its prices are the highest of any publicly traded homebuilder, Yearley says.

While the housing recovery is “real,” Toll’s business softened since May, when mortgage rates began to rise, Yearley says. Consumers are concerned that the economy may slow, and Washington gridlock has led to weakening demand in northern Virginia, he says.

“Confidence is fragile,” Yearley says.

Toll’s customers generally make downpayments of about 30% on their houses, so aren’t as dependent on mortgages for purchases, he says.

Toll’s revenue for the three months through October was $1.04 billion, up 65% from a year earlier, while the dollar value of net signed contracts increased 23% to $839 million, according to preliminary results.

The company is expanding “significantly” in the suburbs of Detroit, while demand is “unbelievable” in Texas. The Midwest is among the softer markets, he said.

The company this month agreed to buy Beverly Hills, Calif.-based Shapell Industries Inc. for $1.6 billion. The deal will more than double the number of California lots controlled by Toll to about 9,200, with most in coastal markets where land is hard to come by, according to Yearley.