Luxury-home builder Toll Brothers (TOL) yesterday reported a second-quarter loss of 59 cents a share, but shares rallied 3% in early trading as analysts were expecting a loss of 96 cents a share according to Reuters Estimates. Revenue exceeded analysts’ expectations of $807.2 million, coming in at $818.8 million.

What’s behind the stock spike?

I suspect the rise in the shares was a knee-jerk reaction to a very small piece of good news. After all, a year ago Toll reported a gain of 22 cents a share on 30 percent higher revenue. CEO Robert Toll even said that demand in most of the company’s markets continues to be weak and has called for Congress to step in and jump start the housing market with tax incentives.

Big Brother Needs to Butt Out

Getting Congress involved is something I don’t agree with. If Mr. Toll wants to move more product, he should lower the price of his homes. It may be painful, and even cost the shareholders some money, but it would go a long way towards getting rid of excess inventory.

What is particularly galling about TOL sending a smoke signal to Congress is that just last December, Toll Brothers posted its first quarterly loss in 21 years as a public company. This recently completed quarter now makes two. Yes, things are tough in the homebuilding industry, but going hat in hand to Big Brother when you’re in a pickle will only create a moral hazard.

Able to Keep the Roof Over Their Head

TOL is managing its balance sheet admirably. Its net-debt-to-capital ratio of 22.7 is a record low for the company and it has $2.5 billion in available capital, with about $1.2 billion of that in cash. The company will clearly be a beneficiary of any rebound in the sector given this liquidity.

I just think a rebound is a long way off, absent any action from Congress. There are far too many headwinds facing the homebuilding industry for us to want to own TOL shares. I feel they can be bought for a lower price at a later time.