Home Builders' Cancellation Rates and Impairments

Part 1 - Cancellation Rates

I'm going to pick on Robert Toll, CEO of Toll Brothers Inc, the luxury home builder. If you remember, Toll put on his swami hat late last year and called the housing market bottom to be in Q1 of 2007. Toll had to then eat his words a few weeks ago when the bottom was still not in sight.

Baghdad Bob Toll struck again during a March 7th webcast during a Citigroup-sponsored conference by saying "the company's cancellation rate has recently moved down to 16% from a peak of 36%."

Ok, great Bob! How about reporting the number of contracts signed during this same period? Those statistics by themselves tell us absolutely nothing. For academic giggles, let's make up some numbers that Bob has thoughtfully omitted. If Toll Brothers had 100 buyers under contract in the previous period and only 33 buyers under contract this period (based purely on the 67% drop in Q4 earnings), the number would shake out as such:

• Previous period > 100 buyers * (1 - 0.36) = 64 buyers
• This period > 33 buyers * (1 - 0.16) = ~28 buyers

The bottom line numbers are totally ignored when Bob only mentions the cancellation rates. How the mainstream media (MSM) doesn't call Bob out for his smoke and mirrors tactics is pathetic. I can't be the only person who questions these soundbites the MSM latches onto, can I?

Part 2 - Land Impairment Figures

...to be continued.