Toll Brothers Climbs as Luxury-Home Orders Hit Two-Year High

Toll Brothers, the country’s largest luxury-home builder, says wealthy Americans are still buying expensive homes despite high mortgage rates and growing worries about the housing market.

The company reported Tuesday that orders for new homes reached their highest level in two years, helping push shares higher after earnings topped Wall Street expectations.

For everyday consumers, the results highlight a growing split in the U.S. housing market: middle-class buyers are struggling with high monthly payments, while wealthier buyers continue purchasing million-dollar homes with far less pressure from interest rates.

Toll Brothers signed contracts for 2,834 homes during its latest quarter, up 7% from a year ago. The average selling price topped $1 million per home.

CEO Douglas Yearley Jr. said the company continued to perform well despite what he called a “challenging market,” adding that demand at the high end of the housing market remains strong.

The results stand out because much of the broader housing market has slowed sharply.

Mortgage rates remain near their highest levels in years, with the average 30-year fixed mortgage climbing close to 6.7%. Higher Treasury yields — which heavily influence mortgage rates — have continued rising amid inflation fears tied to the Iran war and energy prices.

For many Americans, that has made buying a home increasingly unaffordable.

Monthly mortgage payments on a typical U.S. home are now hundreds of dollars higher than they were just a few years ago. Many homeowners who locked in low 3% mortgage rates during the pandemic are also refusing to sell, creating a shortage of homes on the market.

But Toll Brothers operates in a very different part of the market.

Its customers are typically wealthier buyers who often make larger down payments, carry smaller mortgages relative to home values, or pay cash entirely. That makes them less sensitive to rising interest rates compared with first-time or middle-income buyers.

The company said many of its luxury communities are still raising prices, showing that demand at the top end of the market remains healthy even as entry-level housing slows.

Toll Brothers also raised its forecast for the rest of the year, signaling confidence that wealthy buyers will continue spending despite economic uncertainty.

The company ended the quarter with more than $1 billion in cash and continued buying back its own stock while increasing its dividend to shareholders.

The strong earnings report adds to growing evidence that the U.S. economy is increasingly splitting into two different realities.

Higher-income Americans have continued benefiting from strong stock markets, rising asset values and accumulated wealth from recent years. Many can still comfortably afford luxury homes even with elevated interest rates.

Meanwhile, many middle-class families are finding it harder to qualify for mortgages or afford monthly payments at current prices.

Housing analysts say that divide has become one of the defining trends of today’s real estate market.

Existing home sales across the country remain near multi-decade lows, while builders targeting first-time buyers have increasingly relied on incentives and mortgage-rate discounts to attract customers.

Luxury builders like Toll Brothers, however, continue seeing stronger demand than much of the industry.

For now, the company’s latest results suggest wealthy buyers are still willing to spend — even as much of the rest of the housing market remains under pressure.

— JBizNews Desk