Toll Brothers: They’re Practically Giving It All Away

Toll Brothers
Toll Brothers

As the home builders en masse continue to beg for a home buying stimulus from Congress that includes a government-subsidized mortgage rate buy-down, luxury home builder Toll Brothers is getting ahead of the game.

They are offering a 3.99 percent interest rate through their TBI Mortgage subsidiary. You have to have 720+ FICO score and put at least 20 percent down, but if you’re buying a Toll Brothers home, and you’ve got the goods, the low rate is yours.

It has me wondering if low interest rates are really the answer.

Interest rates on the 30-year fixed hit some of the lowest numbers in history over the last few months, but all that did was to spur a mini refi boom. Granted, there’s nothing wrong with refis, they put more money back into consumers’ pockets and could potentially help some homeowners who can no longer afford higher payments. But it was particularly disturbing to me that the low low rates did not spur any real home buying.

Affordability in housing is approaching levels not seen since the mid 80’s, when housing was booming. Home prices then were about 2.9 times median household income as opposed to 4.5 times the median income during the peak of the housing bubble in 2006. Home prices are way down – anywhere from 8 percent to 35 percent, depending on where you live. So why is household formation still slowing? Given the numbers as they are today, buyers should be out there eating their fill.

The troubles in housing run far deeper than the numbers, I’m afraid. First there is the newly conservative mortgage market. Yes, the rates are lower, but only if you meet strict qualifications. Then there’s the jobs issue. A lot of folks have lost their jobs and a lot more folks are worried that they may soon lose their jobs. Confidence is shot, and so far we’ve seen little in the way of stimulus plans from Congress. The President’s plan doesn’t really address the foreclosure crisis; he’s instead left that to the TARP money, but given no details as to how it will be spent.

I’d be interested to see if the Toll Brothers incentive really works. Toll homes are higher end and tend to be move-up properties. Right now there is so much supply, new and existing homes, and foreclosures are only adding to that supply daily. 3.99 percent may represent a few hundred dollars a month in payments on your loan.

That’s a lot for some, but is it enough for others who already live in acceptable homes and also live in uncertain economic times.

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Questions? Comments?