"When you are out of Schlitz, you're out of beer."
Remember that slogan? If you are old enough you would, and you would recognize that you had to act fast to get yourself a Schlitz before the run out.
Which is exactly why Toll Brothers (TOL) Chairman Bob Toll pulled out that old line when he was describing the lack of inventory in the housing business these days. "You've got 4.7 months of inventory, but that's at the current pace," he told a rapt audience on his earnings' conference call, one of the precipitating factors behind yesterday's rally, which looks like it has follow-through today.
He went on to say about the dearth of homes for sale: "As you get a little bump up in pace, you're out of Schlitz, you're out of beer; what's going to happen is that it is going to be expensive. And I am not predicting that's coming on us, but it could be a spur to new housing sales. "
In other words, the lack of inventory makes it so new buyers are going to have to act if they want to secure a home and can't wait on the sidelines any longer.
Not only that, but Toll thinks that higher interest rates could make a positive, not a negative difference. Or as he put it, "if the Fed goes up and the mortgage rates go up an eighth or a quarter, that doesn't mean we shut down. It probably means price increases coming soon, which spurs demand and spurs action."
Pretty amazing; the thing that everyone's dreading may be the thing that drives housing out of its doldrums and this miserable group of stocks higher after four years of going nowhere.
I have been listening to Bob Toll's calls ever since they started having them, and it's been ages since he has been so succinctly positive. He gave you a great summary of the state of housing right at the top of his comments: "We continue to believe that the drivers are in place to sustain the current housing market's slow, but steady growth. Interest rates remain low, the job picture continues to improve, home equity values are rising, supply remains constrained and the industry is still not building enough homes that current demographics imply are needed."
This truly was the breakout call that many of us were waiting for. The average price of a home moved from $713,000 to $855,000. Labor costs, which had been worrisome, were deemed under control. Gross margins were terrific. Closings happened much more quickly than analysts had been expecting.
The demand was widespread throughout the country; Denver, Seattle, Reno, Las Vegas, Dallas, New Jersey, Maryland and Pennsylvania were all called out as positive. Oddly, given Texas as a Mecca for oil, Dallas was cited as the one area where demand was the hardest to keep up with. California was a problem, if only because Toll didn't yet have enough units to sell. High quality problem, for certain.
In fact the only part of the country where there is an actual bid-ask, a negotiation so to speak, is at the highest end in Manhattan. To me that seems that plus $3 million market in Manhattan is the only market in the whole country that may softening now that oil seems to have hit bottom and has turned up.
The housing stocks have fooled us many times since they plateaued a few years ago and then sold off. I know that I have been very wary of them and each time have been correct in being circumspect.
But this time, with limited supply, excellent demand, costs under control and no areas in the country soft, while buyers are fully accredited, with none of that no doc nonsense?
I think the time is right to buy Toll. Even after yesterday's rally.