Market taking toll on builders
TEXT OF STORY
Scott Jagow: One of the country’s biggest homebuilders reported a sharp drop in profits this morning. Toll Brothers said it made $26 million in the third quarter. Compare that to $174 million in the same period last year. As Amy Scott reports, builders may have a long road ahead.
Amy Scott: It’s tougher for home buyers to get loans these days.
The subprime market is virtually closed. In the past few weeks several mortgage lenders have stopped selling what are known as Alt-A loans, and lenders have also raised interest rates on so-called jumbo loans. Those are the outsized mortgages a buyer of one of Toll Brothers’ luxury homes might need.
Alex Barron follows the building industry for Agency Trading Group. He says tighter credit means fewer sales.
Alex Barron: So the builders are basically trying to figure out, what do we do? Do we just sit on this land and wait for demand to come back? Or do we just build the houses and hope somebody shows up to buy them? That is, for many builders, the only way they can ever get their money out of the land.
Barron says Toll Brothers is in better shape than most because it doesn’t have as much debt, but he expects to see some smaller builders fold in the next couple of years.
Last week Tarragon, a New York City builder, warned investors its days may be numbered.
In New York, I’m Amy Scott for Marketplace.
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