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Demand for luxury homes soars

By Judy Martel ·
Thursday, August 23, 2012
Posted: 2 pm ET

A combination of higher home prices and soaring demand sent luxury homebuilder Toll Brothers' earnings up by 46 percent and orders up by 57 percent in the third quarter, their best sustained demand in five years.

Toll Brothers caters to buyers with incomes more than $100,000 who have good credit and the ability to make a 30 percent down payment on a mortgage. That sector of the housing market hasn't suffered as much as the market overall, although demand had been lagging since 2007, the start of the housing bust. In a statement, Toll Brothers CEO Douglas Yearley attributed the rise in part to pent-up demand among households who can afford to move up.

"Higher-income households show consistently higher and consistently improving feelings of financial security, much more than the general population," according to Greg McBride, senior financial analyst at Bankrate. "These households also report rising net worth and improving financial situations over the preceding 12 months, key barometers for those considering a big-ticket purchase such as a home."

Even as the rest of the housing market continues to improve overall, there are still challenges ahead. Rising home prices will move some underwater homeowners into positive equity, but there are still more than 11 million Americans who owe more on their mortgage than the home is worth. McBride says the economy needs to further improve before the housing market as a whole sees a significant upswing.

"Until the average American household starts to see consistent and substantive wage growth, their ability and willingness to support higher home prices and bigger debt loads is limited," says McBride. "All in all, this will keep a lid on home prices, but the rebound could come more quickly on higher-end homes where prospective buyers have the financial wherewithal to purchase without undue strain."

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