The largest US luxury homebuilder crushed earnings but acknowledged the big problem in the housing market

REUTERS/Mike Blake

Toll Brothers, the largest luxury homebuilder in the US, reported strong earnings Tuesday but acknowledged one of the biggest problems in the housing market.

The homebuilder, which focuses much of its business in the high-end markets in California and New York, reported earnings of $0.51 a share in the second quarter, beating estimates of $0.46 a share. Revenue also beat expectations, totaling $1.12 billion versus analyst forecasts of $1.04 billion.

Robert Toll, the company's executive chairman, seemed encouraged by the business to start 2016 but also addressed the biggest problem facing the housing market.

"We continue to believe the drivers are in place to sustain the current housing market's slow but steady growth," he said in a release accompanying earnings.

"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 to meet the demand that current demographics imply are needed."

Indeed, as we've mentioned before, the implied demand in the housing market is running well above the number of homes being built, pushing prices higher and keeping many first-time homebuyers out of the market.

Toll, while not a starter homebuilder, reported 1,304 completions in the quarter, up 9% from the second quarter of 2015. But average prices rose 19% to $855,500 a home from $713,500 during the same period last year.

Toll also said the number of houses completed in the future would need to increase to allow millennials to access homes. New homebuyers entering the market typically moves people already in first-time homes up to larger houses, supporting luxury builders like Toll Brothers.

"Another US Census report last Tuesday noted that single-family housing permits had risen by 8% in April from one year ago," Toll said. "As millennials mature, studies indicate that their appetite for home ownership is consistent with past generations, which is encouraging for our industry."

Thus with increasing demand, more homes need to be built. Which is good news for homebuilders like Toll.

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