Don Tomnitz, CEO DR Horton, has to be the early leader for CEO of the year. On March 7, he made the most honest statement uttered from a CEO, in the home building industry, in recent memory. Tomnitz said, “I don’t want to be too sophisticated here, but 2007 is going to suck, all 12 months of the calendar year.” Mari Bartiromo, CNBC reporter, couldn’t believe that a CEO would use such language.
Earlier that very same day, Robert Toll, CEO Toll Brothers, suggested that the real estate market had bottomed. “I would guess, and that’s all it is, it would be another four or five months before you finally burn off inventory in most of the markets.” Read my previous article, “The Real Estate Market: Why Bottom is a Dirty Word.”
Apparently eight days later on March 15th, Mr. Toll had a different story to tell. He said the start of the spring selling season was “pretty much a bust” and he can’t predict when the housing recovery will begin. He went on to say, “When will the market rebound?” “Who knows? The Shadow knows. I have no idea. I would’ve thought that it would’ve rebounded by now and I would’ve been dead wrong, and I was.” per Bloomberg
I like suck better, but bust is a big improvement over his previous statements. Why the change in tune? Toll realized that he could not continue this charade. First the company released its earnings report on March 14. If he continued painting this rosy picture he could be setting himself up class action law suits. Shareholders are already outrage at his compensation. Last year, he received a bonus of $17.5 million and received 250,000 stock options as the company’s profits fell by 15 percent. His average three-year compensation was 564 percent higher than the median paid to CEOs at peer companies, according to Proxy Governance’s report.
Additionally, everybody and their Grandmother now knows about the subprime fiasco. The new tighter lending standards will significantly reduce the pool of potential home buyers. Continuing to sing his same old tune would make him look completely out to lunch. Toll should thank my pick for CEO of the Year, Don Tomnitz, for paving his way. Now he is free to use colorful words such as bust. Instead of dirty words like bottom.