The U.S. housing market faces significant headwinds, but Toll Brothers is holding up well. The luxury homebuilder saw contracts signed climb 5% during the three months through July 31, compared with the same period last year. Management kept its full-year guidance unchanged, signaling confidence that demand from affluent buyers will persist.
Investors responded positively to the news. The stock climbed as much as 7.9%, marking its largest intraday gain since June 24. By 12:59 p.m. in New York, shares were up 6.3%.
Toll's customer base differs sharply from the typical homebuyer. About a quarter of buyers paid all cash, and move-up buyers - those purchasing a more expensive home than their current one - accounted for 61% of home sale revenue, according to Executive Chairman Doug Yearley.
"We are not here to call a bottom, but I am really proud of the returns we are generating in a tough market," Yearley told analysts on a Wednesday conference call.
The company has not simply maintained the status quo. It lifted prices in roughly one-third of its communities. Strong demand was especially evident in Florida, Denver, Boise, Idaho, and Las Vegas and Reno, Nevada. Toll also expects to operate 8% to 10% more communities by fiscal 2027, with new projects concentrated in the luxury segment.
Toll is deliberately prioritizing price over volume. Bloomberg Intelligence analyst Drew Reading observed, "The company continues to prioritize price over pace to maintain its above-peer-average margin." That approach is paying off: gross margin reached 25.6% in the quarter, exceeding analyst expectations.
Yearley struck a confident tone about the company's strategy. "We are not in the business of buying market share," he said. "We're in the business of building high-quality communities that generate strong returns."
The broader housing market remains sluggish. Elevated mortgage rates and scarce existing-home inventory have pushed many first-time buyers to the sidelines. Many would-be purchasers have delayed their home searches, waiting for borrowing costs to ease.
Some have chosen to rent rather than buy, further reducing demand for entry-level homes. But at Toll's price points - its average home sells for approximately $1.35 million - demand remains steady.
The contrast between Toll's experience and the broader market highlights the uneven nature of the housing downturn. While first-time buyers struggle with affordability, the upper end of the market benefits from buyers who pay cash or use equity from previous sales. This dynamic has allowed Toll to maintain pricing power even as the overall market cools.
The company reaffirmed its full-year guidance.
This bifurcation is likely to persist as long as mortgage rates remain elevated. The company's experience suggests that the luxury segment may continue to outperform the broader market for the foreseeable future.
Still, Toll is not entirely immune to the slowdown. Management noted that traffic in July was softer than expected and adopted a cautious tone for the second half of the year. The company is monitoring market conditions closely and remains prepared to adjust its strategy if needed.
For now, though, the company's wealthy customers continue to shop. And that is enough to keep the builder busy. The coming months will reveal whether this resilience persists, but Toll's current performance suggests that the luxury market remains a bright spot in an otherwise challenging housing environment. Investors will be watching closely to see if this trend continues into the fall selling season.