Location Strategy Chartbook 03.01.25

Fortune: “Demand for our homes continues to be supported by our affluent customer base,” Toll Brothers chief executive and chairman Douglas Yearley said in an earnings call on Wednesday. “Over 70% of our business is luxury move-up and empty-nester, which serves a wealthy cohort that has benefited from years of home price and stock market appreciation. The remaining 25% to 30% serves the more affluent first-time buyer, many of whom are older millennials buying their first home later in life when they have higher incomes and are more financially secure.”

“We continue to see the long-term outlook for the new home market to be very positive, particularly for our luxury niche,” he said. Throughout this latest bust in the housing world, the new home market has topped the existing home market.

LS Commentary: what makes it luxury? If you just happen to build in a pricey location/zip code, or larger homes, but your designs are not materially distiguinshable from lower price point homes, then can you call yourself a luxury builder?

Which bathroom is in the more expensive home? Top or Bottom?

Yearley explained that affordability constraints did put some pressure on sales, especially in lower-tier markets or lower-end priced homes. But in all of California, for one, demand was strong.

Toll Brothers’ net income and earnings per share came in below expectations, but according to Yearley, it was primarily because of impairments and a delay in the sale of a stabilized apartment. Its core homebuilding operations, on the other hand, met expectations. In the first quarter of the year, the homebuilder delivered 1,991 homes at an average price of around $925,000, creating home sales revenues of $1.84 billion. Toll Brothers reported that it signed 2,307 net contracts for $2.31 billion in the first quarter, up in units and dollars compared to last year. It owns enough land for more development too, the company said. Still, Toll Brothers shares fell almost 6% today on the news.

LS Commentary: I do not see a mass affluent product nor distinct product differentiation. Where is the 100k outdoor living room and outdoor kitchen package upgrade? Where is the 100k wellness/sound/sleep package upgrade? Where is the co-branded product placement of “luxury” upgrades?

I am interested in discussing with a Developer or Builder what “amenities” people perceive as luxury or experiential and how that may lead to a targeted market segment and additional revenue streams. Please call or email me at [email protected]

Instead as you look across a range of price points and new construction builders, can you distinguish which is the most/ least expensive home based on looking at a kitchen or bathroom?

Atlanta Fed is now projecting that Q1 GDP will be -1.5%, a contraction.

4 weeks ago it was +3.9%

University of Michigan consumer survey: Year-ahead inflation expectations jumped up from 3.3% last month to 4.3% this month, the highest reading since November 2023 and marking two consecutive months of unusually large increases. This is only the fifth time in 14 years we have seen such a large one-month rise (one percentage point or more) in year-ahead inflation expectations.

Deep auto loan delinquencies just hit a near 15-year high:

While still not at the record high seen during the peak of the Great Financial Crisis—

Auto loans transitioning into 90+ days past due are up 60 basis points from 2019.

The median household income necessary to purchase the median home for sale in the US ($118k) is 49% higher than the current median household income ($79k). The most unaffordable housing market in history continues.

Developers dumped almost 50,000 rental units on the city in 2023 and 2024, according to Fannie Mae data. That represented a 14% increase in the supply, the biggest on a percentage basis for any major US metro area. “The rental market here is saturated with availability,” said Jody Lockshin, a veteran Austin broker and the owner of Habitat Hunters. Landlords have almost no leverage, and she has seen buildings offer three months free to new tenants and rate reductions to keep ones already in place.

Developers Tishman Speyer and Ryan Cos. are offering as long as eight weeks free rent at ATX Tower, a high-end residential and office development in the heart of downtown. With about 370 units, the building features some of the most elaborate amenities in the city, including an indoor cinema, a co-working lounge and a 20th-floor pool overlooking Republic Square Park. Prices start at $2,352 for a studio and climb to almost $8,000 for a three-bedroom.

The number of office leases canceled, according to a list CoStar News reviewed Tuesday by the Department of Government Efficiency, more than doubled from earlier in February, increasing to 254 leases from 97. The list totaled more than 3.8 million square feet, with an annual rent savings of $114.7 million.

Saks Global said it is closing the store on March 31 after not being able to reach a deal with one of the property's landlords. Despite local efforts to resolve the issue with the landlord, the New York City-based company that bought Neiman Marcus in December reaffirmed in a statement late Thursday its plans to close the downtown store and invest in another Neiman Marcus store at the sprawling NorthPark enclosed mall that's more popular with area shoppers.