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Toll Brothers CEO Doug Yearley on the potential impact of the fiscal cliff on the housing market and overall economy.
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In -- coal locked up with some housing is clearly in recovery a lot of the housing stocks at least at a certain point over this year hit.
New highs all you have to do -- look at recent data points in terms of sales of new homes new orders.
Number of signed contracts these metrics really matter and even actually prices in many parts of the country.
Question is will at last after all we've been fooled a couple of times before but this time you've got the fiscal cliff.
What that sword of damocles hanging over this entire sector of spring and Douglas nearly he's Toll Brothers CEO he's joining me in a Fox Business explicit.
From portion Pennsylvania and Doug I am so glad you're here because.
You know first we could we could very easily just say -- business but.
I'm assuming business is looking a lot better my question do you what is what is the number one indicator TU that your business.
Is actually on our on -- sustainable turnaround vs just a blip and then we might be fooled again.
Well we've had great sales through the entire year.
And they continue now in December when -- three weeks away from this threaten fiscal cliff so.
You know we feel great household formations are growing again.
Mortgage rates at three and a quarter percent.
Buyers have been on the sideline for five years and have anxious been anxiously been waiting for better news more consumer confidence to come back out.
And that's happened we -- great spring selling season we sold through the summer and now we're selling into the went terror wow so boy at all sure it all feels good.
Now that that doesn't that doesn't usually happen with as much muscle loved how -- the credit flows -- -- are ideologues Jansen credit flow or our would be buyers getting the credit they need to purchase homes.
Our clients are able to get mortgages we we sell the more expensive homes are buyers had to put a lot more money down.
They mortgage a lot less they have very high credit ratings.
So we're not seeing that problem at all the lower price point it's still a little bit of a problem but it is getting better.
You know when you look at.
Parts of the business that have been doing well construction and away if you listen to the analysts has taken a little bit of a back -- To the actual lending business -- it's creating a cash cow for a lot of you guys up there you have a mortgage unit.
How is that doing and we understand the margins are very healthy from a lot of these names that are out there.
-- you know our mortgage company is there to service told Brothers told -- -- the only client that it has.
It's not in the business of making -- in the business for about providing great service having great rates making sure we can close homes.
And that's really our focus so it's really -- secondary ancillary business -- that supports housing.
So do -- is that what you don't break out I guess the margins on this part of the business.
That's correct -- that's exactly right other hopeful look let's talk about fish -- Fitch ratings agency came out with this report that said that they are highly concerned.
That the home price rebound might be.
Pretty pretty solid about it saying that if we go off the fiscal cliff a lot of programs that have helped this housing market rebound might be cut and therefore.
Would cost a real problem what do you say to that report.
Well I think the whole country's very concerned about the fiscal cliff I think that's obvious I think everybody sitting back and waiting.
To see if Washington can actually get something done.
If political agendas can be put aside and we can think about the devastation that probably would occur.
With the fiscal cliff.
You know that the spring selling season for home builders begins in late January.
We have been the bright spot in the economy.
Our industry is creating the jobs we are coming back -- in the early stages of -- recovery.
So I think the fiscal cliff.
January 1 would have a huge impact on the country would have an impact that our business.
And we have our fingers crossed and are very hopeful that.
Washington can get something done.
And a lot to say but it but if they don't.
There's no question is going to be -- there's going to be a little bit of time until things settle down.
I think some buyers will hit the sidelines he went what you will leave it -- it.
No I don't think it.
From this fiscal -- date and we're still is still selling houses so I don't think it derails it but I think there could be a pause until things get worked out.
Doug via horse trading is in the early stages but part of it is is being discussed -- that of course is the possible elimination or at least the cutting of the mortgage interest rate deduction here.
On one hand you say that would really hurt this this industry and we need this sector to come back on the other doesn't everybody.
Have to have a stake in this doesn't everybody have to feel a little bit of the pain how do you feel about the possibility but that could either be cut or eliminated.
Well I I think it would be unfortunate they did it now because again -- -- Is what's driving this economy were in the early stages of -- recovery.
So I think it's important not to touch any thing to do with housing for the first year.
But we understand that if there has to be a modest tweak to the MIT.
Mortgage interest deduction I think it'll be okay I don't think you'll ever be eliminated.
But it but if they have they if there are some modest changes to it will be fine I think I think demand is picking up enough.
And I think -- -- we feel we feel good enough about where things are headed that that's not really what we're worried about now what's the bigger cliff.
That I think is the issue that's in front of all of us.
You know I would say that's and as you know that you you have been able to say at least a modest tweak you could actually live with them that the industry could live with of how do you feel about say for example.
The cafeteria style discussion that they've had whether it all deductions would be capped at 181000 or 25000 people could pick and choose what they want.
And perhaps they choose the charitable.
Philanthropic deduction or perhaps they choose the mortgage interest rate -- maybe somebody hasn't bought a house they don't need that more they have.
Could you live with that part of it.
Not I don't think it dollar amount cap on deductions makes any sense but if it was a percentage amount I think that's something that.
Is more sensible.
I think I think congress and the president understand that.
Don't go after the mortgage interest deduction right now 65 to 70% of this country owns -- home.
So I think it's more likely that there will be discussion about deductions in general without identifying the individual deduction such as the MIT.
I want to see how it plays out I don't think any of this gets done in the next three weeks I think that'll be discussion deferred some time from now.
And I think that'll be a healthy discussion and so long as housing is not stalled because we go over the cliff whatever is discussed over the next year -- should be OK well.
You're having a great winter season start to the selling near that's fantastic -- -- Doug thank you for joining us to talk about it.
Thanks less any time Douglas yearly is -- told brother CEO and the fact that he says not this year but eventually it.
They could live with a tweak to the mortgage interest rates deduction -- is interesting stuff here were watching this so closely because everybody probably is gonna feel it one way or another.
