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Big Profits For US Home Builder


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What's going on?

US home builder Toll Brothers said on Tuesday that it just had its best spring selling season in over 10 years – and that helped it make 40% more profit than it did in the same period a year ago, beating Wall Street’s expectations.

What does this mean?

The overall US housing market has performed very well in recent years. Low interest rates, which make mortgages more affordable, and an improving job market have helped boost demand for houses and apartments. Although recent data on housing in the US has been a bit mixed, Toll Brothers’ results are an indication that this market still remains strong overall.

Why should I care?

For markets: Higher interest rates could hurt demand for new houses.

The US Federal Reserve has been gradually increasing its target interest rate since 2015. While it’s still very low by historic standards, economists expect that it’ll be increased at least twice more this year. The target interest rate sets the benchmark for the cost of borrowing money and, as it goes up, it usually gets more expensive to take out loans (including mortgages) from the bank. As mortgages become more expensive, buying homes becomes less affordable for many potential buyers.

For you personally: Home builders are beginning to target millennials more aggressively.

Toll Brothers announced in January that it was rolling out a line of lower-price starter homes called T-Select Homes, aimed specifically at young home buyers. They have fewer fancy upgrades and come pre-furnished, all with the aim of keeping the cost down. The sharp end of the millennial generation has entered its early 30s and is beginning to partner up and settle down. This should lead to more demand for buying houses (as opposed to renting apartments) – and this hasn’t been lost on Toll Brothers.

Originally posted as part of the Finimize daily email.

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