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High-end home sales sinking

Jeff Tyler Aug 9, 2006

TEXT OF STORY

KAI RYSSDAL: The Fed took a pass on raising interest rates yesterday as we told you. That should be good for the housing market ’cause lower rates mean cheaper mortgages. Home-builders aren’t taking any solace, though. The luxury home builder Toll Brothers today cut its estimate for the fourth quarter, but the company doesn’t blame slowing demand on high interest rates or job losses or a weak economy. Marketplace’s Jeff Tyler makes sense of it all.


JEFF TYLER: In the market for a brand-new 4-bed, 4-bath, 4,000-plus square foot home in a gated California country club community? Own this faux-chateaux for just $1.3 million.

No thanks? Well, you’re not alone. Toll Brothers says demand for their luxury homes is down.

Morningstar analyst Eric Landry says the company’s sagging numbers confirms a trend.

ERIC LANDRY:“This is the third quarter in a row with 30-plus percent decrease in orders. So things are really kind of declining here for Toll Brothers.”

Landry says the real estate boom is over, and speculators who were attracted by low-interest rates and big potential profits are worrying.

LANDRY: “They’re hoping to flip it at a profit. And it’s appearing that the profit is evaporating as we speak. And so, that’s actually bringing more supply in there as people try to get rid of these things while they still have some profit or while they have a small loss.”

National Association of Realtors chief economist David Lereah agrees about the impact of speculators, but sees some reason for optimism.

DAVID LEREAH: “It’s consumer confidence. It’s the speculators coming out of the market. That’s what’s driving these markets down right now, ad that gives us a comfort level that there will be buyers on the sidelines waiting to get back in if sellers start to bring their prices down.”

The tables are finally starting to turn for buyers, says Morningstar’s Eric Landry.

LANDRY:“If you’re a buyer, this is actually the first time you’ve had a chance to negotiate in years.”

Today a new Mortgage Bankers Association report shows mortgage applications rose for the first time in four weeks.

But still, applications are down 25 percent compared to this time last year.

I’m Jeff Tyler for Marketplace.

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