Toll Brothers stock fell sharply Tuesday after the luxury-home builder gave weaker-than-expected guidance for the first quarter, pointing to reports about a souring housing market as the cause of the slowdown.
In October, sales of newly built homes fell 12 percent from a year earlier, even though the median price for new homes dropped. Economists have said the decline in new home sales stems from weakened affordability across U.S. local markets. The housing market has begun showing signs of cracking this year, while real estate brokers are saying that offers for homes have thinned out.
Toll Brothers shares fell 4.6 percent in premarket trading.
Toll Brothers beat top and bottom line estimates for its fourth-quarter earnings report. Two of the homebuilder’s key metrics, deliveries and backlog, were at the highest levels in more than a decade.
However, first quarter guidance from Toll Brothers was weaker than expected, with a deliveries range that was markedly below Wall Street’s expectation, according to FactSet.
Yearley said the company “saw similar consumer behavior beginning in late 2013, when a rapid rise in interest rates temporarily tempered buyer demand before the market regained momentum.” Known as the taper tantrum, rates jumped in 2013 when the Federal Reserve signaled a reduction of money being put into the economy, leading to a surge in mortgage rates. Home sales recovered, however, when mortgages rates fell back again.
Some economists fear this time will be different. Lawrence Yun, chief economist for the National Association of Realtors, said in November that “this time, interests rates are not going down.”
“In fact, they are probably going to increase even further,” added Yun.