Fewer new construction orders for luxury-home builder Toll Brothers Inc. has led the company to cut its sales outlook.
Luxury-home builder Toll Brothers reported a 60% decrease in new orders over three months. The company had expected 2,568 new purchase contracts to be signed May through July. The actual number was 1,266.
Initially, Toll Brothers had anticipated constructing 11,000 to 11,500 new homes this year, now that estimate is 10,000 to 10,300.
Demand for new home construction is the lowest it has been since 2016, Bloomberg reports. To avoid a stockpile of inventory, builders are resorting to discounts and other incentives to move product.
Toll’s customers are not everyday homebuyers. The average price of a Toll Brother’s home is $1 million. Even though its clientele has a deeper pocketbook, Toll’s customers are feeling the pressure from inflation and high mortgage rates.
Why it’s news
Rising mortgage rates are affecting every part of the new home market. In order to avoid a high monthly payment, buyers are decreasing their budgets.
Previously, high demand had skyrocketed existing home prices with some buyers paying thousands over the asking price and waiving inspections. Now, homeowners looking to sell are having a harder time getting their house off the market.
New home construction is slowing as builders try to adjust for lowering demand. Lessening demand doesn’t necessarily mean fewer buyers need homes, they homes are just outside of buyers’ budgets.
Pew Research found that 49% of Americans have trouble finding affordable housing.
Backing up a bit
In addition to higher mortgage rates, a slowing housing market means Toll’s customers are having a harder time selling their existing home, delaying their purchase of a new one.
Unlike the single-family home market, Talk’s luxury homes will likely take longer to recover because the homes have a longer construction time, Bloomberg reported.
In addition to lower demand, the company says it is also seeing delays due to labor shortages and difficulty getting materials due to supply chain disruptions.