Friday, January 13, 2006

The Toll Brothers Purchase of 5,485 acres

I ran the numbers as I see them for the Toll land purchase in Phoenix. Some assumptions I made were the land (quantities a guess) used for commercial and schools are a separate issue and will provide a profit, or break even.


5,485 acres
$312,000,000 total cost
$56,882 per acre
600 acres schools
600 acres commercial

4,285 acres residential
$243,741,112 Cost of land for residential
20,000 homes

$42,000 Infrastructure per house (roads/utilities)
$840,000,000 Total Infrastructure
$98,000 Cost of construction per house
$1,960,000,000 Total house construction
$15,000 Permits per House
$300,000,000 Total Permits

$3,343,741,112 Total Residential Cost

$315,000 median home price in the outskirts of Phoenix (used Gilbert's median to come up with fair value)

$6,300,000,000 Total Revenue

$2,956,258,888 Profit (residential only)

$167,187 Allowable sale price of Houses for breakeven

Note that home prices can fall in Phoenix and Toll will still make a good profit!!!

I was wrong

Europe did not raise rates. The dollar quickly corrected the amount it lost over the previous five days. Our rates hung tight - even dropped a 1/100 of a point.

So what happend with the slide I predicted - Well that came true. I was kinda facinated by it. I think this article hit it right on the head. I read it and said to myself - screw it I'm taking a couple days off from the home builders as plan.

Notice the part I high lighted. Bloomberg called it. traders were fully expecting a rate increase. We had this all mapped out. We would pull out of housing. Let the rate increase in europe create a stir in our rates. Then buy back next week.

Some times plans are just to hard to change. We were all determine not to bite. Did you notice the low volume during the slaughter? The home builders played out exactly how they were suppose with a European interest rate hike.

But with no hike. The truth is home builders should have done alright. Interesting what us damn traders can do to the market.

It will come back strong next week. One strange ride.


Bloomberg News

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Futures Traders Trim Bets on ECB Rate Reaching 3% This Year
Jan. 12 (Bloomberg) -- Futures traders trimmed bets on the European Central Bank's interest rate reaching 3 percent this year after President Jean-Claude Trichet steered clear of signaling increases, saying risks to economic growth ``continue to lie on the downside.''

Trichet declined to say the ECB was ``vigilant'' on prices, a word the bank used last year to indicate heightened concern toward inflation.

``The market was positioned for a more hawkish tone from Trichet -- similar to his tone in October -- and instead he did not significantly change his outlook and maintained reference to downside growth risks, '' said Kamran Moghadam, head of European derivatives strategy at JPMorgan Chase & Co. in London. ``We currently see about two more hikes fully priced for this year.''

The ECB today kept its benchmark lending rate at 2.25 percent after last month increasing it for the first time in more than five years. While signs of accelerating growth in the dozen euro nations give the ECB scope to raise rates, today's comments suggest the governing council wants to wait for more evidence that the economy is strengthening.

The yield on the euro three-month interest-rate future maturing in December fell 6 basis points to 3.01 percent after Trichet's comments at a Frankfurt press conference.

That indicates traders expect the ECB to make two quarter- point increases to 2.75 percent before the end of the year. The contracts settle to the three-month euro interbank offered rate that has averaged 0.16 percentage point over the ECB rate since the euro's introduction in 1999.

Interest-Rate Swaps

All 44 economists surveyed by Bloomberg last week expected the bank to leave the rate unchanged today. Traders expect the rate to increase to 2.75 percent by October, the September futures contract shows.

Futures are agreements to buy or sell assets at a set date and price.

The fixed rate companies can receive in return for floating interest payments also fell after the Trichet's comments.

The euro swap rate fell 2 basis points to 3.40 percent for contracts maturing in 10 years.

Companies use swaps to match the type of interest they pay on their debt with the rates on their income, or to help lower borrowing costs. Expectations for lower interest rates typically reduce demand for contracts to pay fixed and receive floating interest, cutting swap rates.



To contact the reporter on this story:
Hamish Risk in London hrisk@bloomberg.net

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