Toll Brothers ( TOL) rallied Tuesday as the luxury homebuilder posted solid results and bragged that it's recession-proof. Though the stock and its sector have been solid bets during the downturn, analysts increasingly wonder if macroeconomic trends aren't arraying against them.

"Housing will actually be a bit weaker in 2002," said Sung Won Sohn, chief economist at Wells Fargo. "Probably, the stock prices should reflect the change in housing activity going forward."

From a low of $27 in September, Toll is up 74% to $47.14. It gained $3.16, or 7.2%, on Tuesday.

Other builders have also benefited from the market's strength: Pulte Homes ( PHM) has risen 88% since hitting a low following the Sept. 11 tragedy, while D.R. Horton ( DHI) has gained 106%.

"It's going to be tough to beat 2001, in terms of market or stock price activity," said Sohn.

Hubris?

Toll Brothers strongly disagrees. "The company, and the home building industry in general, may have skipped the recession of 2001 and 2002," said Robert Toll, chief executive of Toll Brothers, in a written statement. "With the economy now improving, we believe the best is yet to come."

Toll Brothers earned $44.5 million, or $1.20 a share, in the first quarter, compared with $39.9 million, or $1.01 a share, a year earlier. Analysts were expecting $1.05 a share, on average, according to Thomson Financial/First Call. Revenue rose 5% to $482.7 million from $458.4 million a year earlier.

Toll expects to exceed analysts' earnings estimates of $5.08 for the fiscal year.

"The luxury market continues to flourish, as it has for the past 11 years, driven by strong demographics and increasing affluence," said Toll. "Other than the brief weakness of late last summer and early autumn, buyer demand has been strong since 1991."

Some economists think housing market activity will be able to match 2001 results. "While there isn't pent-up demand for housing," said Michael Moran, chief economist at Daiwa Securities, "with an improving job market and overall economy, 2002 is going to be a good year."

"Even if housing activity is flat to lower in 2002, the public homebuilders are gaining market share relative to smaller builders," said Joseph Sroka, an analyst at Merrill Lynch.

How Long?

But some say that the recent breakneck pace of home sales will be tough to maintain.

"The recent strength in the housing market is certainly overstated," said Christopher Winham, an analyst at Goldman Sachs. "It's very difficult to gauge actual demand during the winter."

Existing home sales rose 16.2% in January, the National Association of Realtors said Monday. Sales rose to a seasonally adjusted annual rate of 6.04 million units in January, a new monthly record level, from a pace of 5.20 million units in December. The consensus estimate was for 5.25 million units.

But if you take out the seasonal adjustment -- which is made to correct for bad weather in the winter -- sales of preowned homes actually fell 16.8% in January. They're still up 14.3% over the last 12 months.

Masquerade

The volatility of seasonally adjusted results, combined with the fact that this was the warmest winter on record, suggest to Winham that the numbers are showing more strength than is underlying them.

"If it becomes more evident that the housing market is softer than it appears," said Winham, "most of these stocks are going to have a difficult time outperforming in that environment."

And macroeconomic factors aside, some analysts said homebuilding stocks are due for a breather. "They need some time to consolidate before they move to the next level," said Scott Campbell, an analyst at Raymond James. "I'd prefer to see a more gradual increase in share price, as opposed to a volatile one."

He added: "Toll will outperform over the next six to 12 months, but it won't go straight up."