Toll Brothers Insider Selling Speaks Volumes About True Health of Housing Industry

At the same time Robert Toll, CEO of Toll Brothers (TOL), was touting a promising start to 2009's spring home selling season, he and his brother Bruce were doing some selling of their own. From March 16 to April 8, 2009, the Toll brothers sold some $45M in company stock.

Sure they still hold a combined $247M in company stock, but massive insider sales should always raise a red flag for investors. As I have mentioned before, the financial markets tend to pause whenever Robert Toll speaks about the health of the housing industry. In this case, the markets should slam on the brakes as Toll's money is speaking louder than words can.

These insider sales are even more remarkable compared to the near lack of any selling activity in the other major homebuilders. After doing a quick check, I can only find the insiders at The Ryland Group (RYL) with any significant sales this year.

Note well that TOL's stock is holding up much better than the stocks of other homebuilders, essentially sitting in the middle of an 18-month trading range that is "only" at 4-5 year lows (see chart below, click to enlarge). Most of the other majors have lost all their gains from the last bull market. So, the Tolls may have decided to stop waiting for a turn and to start selling while the getting is still good, such as it is.

I am sure that if asked about these sales, a TOL spokesperson will provide the standard line about "asset diversification" or "regularly scheduled/pre-planned sales." But if the Tolls believed that a housing bottom is in sight, surely the prospect of doubling or tripling (or more?!) their money in short order would be worth the wait? We may never get a good answer but surely we have learned by now that when insiders are dumping boatloads of shares, we should let them go overboard...instead of leaping after them like so much dead fish.

In perhaps related news, AP reports that as many as 100,000 American homes may be threatened by faulty drywall imported from China at the height of the housing bubble. This news is sending regulators and the like scrambling, given this issue could send many more homeowners over the edge to foreclosure and/or bankruptcy. In a worst case scenario, this problem could even cause a deeper freeze in new home sales in the southeastern regions most impacted by the reported toxic fumes released over time under humid conditions. I know when I bought my new house several years ago, I was quite dismayed to discover the shoddy work and cut corners in its construction (I should have listened to my realtor who TRIED to point me to resales - the "beta-tested" homes!). I can only cross my fingers that my own drywall does not contain this ticking time bomb.

*Chart created using TeleChart

Barron's commentator John Kimmelman talks in more detail about the TOL insider sales:

Be careful out there!

Full disclosure: long puts in XHB. For other disclaimers click here.

Comments

[expat in China]

yes it is true!

Most construction materials are spuing toxins at a fairly steady rate and many Chinese families never allow their children to sleep in a room with pressed board cabinates or beds. I have not dubt that the home builders, walmart and textile retailers are aware of the upcoming issues and recalls pending.

The list is endless of processing methods that get the products to the market with hazardous after market impacts. I gave up on all mangos, my favorite fruit :o( , dryed fruits and nuts are out also.

Sell the new colonial home quickly and leave the newer furniture there.

2009 Apr 12 09:36 PM

[TraderMark]

Do as they do, not as they say.

And yes of course that would be the standard line... have to pay for college costs for kids and such... that $5M a year tuition is hefty

2009 Apr 13 01:53 AM

[Fred Voetsch]

Excellent info. Thanks!

2009 Apr 13 02:00 PM

[sticktoitiveness]

They are phasing out tax deductions on interest for high income earners (TOL's demographic).

Toxic drywall. I have you beat, fast food.

2009 Apr 13 03:51 PM

[Matt Miller]

Maybe a Wall Street bank distributed the toxic material. IF that's the case, surely the government will build new homes for them, free of charge and send us taxpayers the bill!

2009 Apr 13 10:15 PM

[PeteK]

With summer season coming and lower loan rates,
home builders should do well.
Add the gov incentives, a sure win.
The population is growing faster than ever.
Why worry about a few pieces of drywalls ?

2009 Apr 19 01:06 AM

[Dr. Duru]

@Freya: I didn't find any insider-buying amongst the major homebuilders I checked on. I was expecting at least SOME in the most beat-up builders...

On Apr 13 08:49 AM Freya wrote:

> Or maybe Toll built on a Toxic waste dump. That's happened before,
> hasn't it?
>
> If Tol and RYL are it on the sell side, are there any on the buy
> side?

2009 Apr 19 08:51 PM

[name]

I feel sick over this poison drywall from China.
I feel sick/angry that suppliers and manufacturers show disregard for their own supply chain. Where was the bloody regulation?!

America is just becoming a nothing country. The Chinese state-business sector is sending poison exports to America (and elsewhere) and nothing is being done to stop the problem at its root--China.

2009 Apr 22 12:16 AM

[Freya]

Or maybe Toll built on a Toxic waste dump. That's happened before, hasn't it?

If Tol and RYL are it on the sell side, are there any on the buy side?

2009 Apr 13 08:49 AM