Luxury Builder Claims 2007 is Worst in 40 Years


by Roberta Murphy

San Diego Rea Estate market
San Diego Real Estate Market

Luxury Builder, Toll Brothers, claims 2007 to be their worst year ever.

If real estate investors are looking for blood in the streets, they had better be wearing galoshes. San Diego short sales and foreclosures make for tough builder competition!

Even the fat books of venerable Toll Brothers, Americas largest builder of luxury tract homes, are in the red. For the first time in 21 years, the company is suffering its first quarterly loss (Oct. 31) in the amount of $81.8 million. Much of this loss can be attributed to $314.9 million in pretax writedowns for homes it could no longer sell at a profit. Even Robert Toll, the company’s founder, concedes that 2007 has been the most challenging year in the company’s 40 year history.

But every loss also registers a gain somewhere and somehow–especially with the San Diego real estate market.

It has been evident that newer tract home subdivisions have been hit especially hard the past couple of years. Many San Diego homeowners needing to sell had bought during market highs and more than a few a have been forced to sell at a loss. Funds spent on landscaping, hardscaping, flooring/ surface upgrades, and window coverings (and perhaps even the down payment) have gone down the drain.

It is a tough time to be a San Diego home seller

This has forced a number of builders with standing inventory to offer costly upgrades as an incentive for potential home buyers. Those buyers, who once had to budget for many of these improvements, are now getting them for free sometimes packaged with interest rate buydowns and other incentives. It is a spiral that has forced builders and their prior home buyers to compete.

Many shrewd Southern California real estate buyers have been renting and waiting for opportunities such as these and are coming out of hiding. Real estate investors who sold at or near the top of the market a couple of years ago are also back into buying mode. And so are foreign investors, who benefit not only from depressed real estate prices in the prime San Diego markets, but also the strength of their Euros and Canadian dollars against the US dollar.

This may explain the recent phenomenon in our beaten-down San Diego real estate market, where multiple offers are being made on properties that are priced under market. Its something we haven’t seen in a long time, and just may be the beginning of a market bottom. Or so we hope.

If you have any questions (or need to borrow a pair of rubber boots), just give us a call at 760-942-9100 or 760-402-9101.