Between 1980 and 2006, Toll Brothers executives point out, the number of U.S. households earning more than $100,000 grew at a rate five times faster than that of the general population. The newly prosperous demanded spiral staircases and basement barrooms. And they were willing to “drive till they qualified,” as the saying goes, accepting long commutes fueled by cheap gas in return for the grandest house the bank said they could afford.

Building an expensive house doesn’t cost that much more than building a cheap one. In terms of sales volume, Toll Brothers was the country’s 13th-largest homebuilder last year, with just one-sixth as many closings as the industry leader, D.R. Horton—a feat it was able to accomplish because its markups on houses were so high. Such margins propelled a national expansion. Concentrated in Pennsylvania and New Jersey at the time it went public in 1986, Toll Brothers quickly opened shop up and down the Eastern Seaboard, and then across the South, the Midwest, and the Pacific Coast, to 22 states in total.

In recent years, as its core clientele has aged, Toll Brothers has diversified, building “active-adult” communities. (Apparently, baby boomers don’t retire; they play.) The company’s also trying to appeal to a new affluent generation by building urban high-rises, including several in New York City. At One Northside Piers, a residential tower on the Brooklyn waterfront with 180 units, prices run from $450,000 to $2 million. A model unit offers stunning views of Manhattan, along with insight into the lifestyle that Toll Brothers thinks might characterize potential buyers. There are books everywhere, and a wall calendar is crammed with imaginary engagements: “MOMA opening,” “cocktail party,” “yoga class.”

A development I visit, just outside the quaint borough of Newtown, Pennsylvania, is a community of Federal-style townhouses (though in the world of Toll Brothers a townhouse comfortably fits a grand piano) that opened in April 2007. “We’ve seen a dip” in sales, admits Gregory LaGreca, the Toll Brothers vice president in charge of the project, “but not the major dip you’ve seen in other parts of the country.” In the development’s sales office, LaGreca stands in front of a glass-covered tabletop map that indicates 14 of 35 homes have closed sales—not bad. Then I notice another map illustrated with 102 home lots. LaGreca, momentarily embarrassed, tells me that was the original plan, which they intend to phase in.

“We don’t want to have too much for sale at one time,” he says. “It allows us to hang on to what we consider to be prime lots.”

Bob Toll’s personal beliefs have always been somewhat at odds with his brand identity. His primary residence is a 19th-century farmhouse in Bucks County. He’s owned the same apartment on Manhattan’s Upper East Side for 20 years. He is given to fulminating against the growing gap between most Americans and the vulgar rich—what he calls the “me-first aspect of society.” To many people who share Toll’s political views, “me first” might be perfectly symbolized by an enormous, energy-guzzling McMansion set far from a city. Toll recognizes the irony but doesn’t let it bother him.

“I don’t believe we’re building houses to make politics,” he says. “I believe in building houses to fulfill a market’s desires.”

In August, Toll attended the Democratic National Convention in Denver. One morning, he comes bounding out of an elevator at the Marriott where the Pennsylvania delegation is staying, wearing a dark-blue suit and a red tie with a nautical theme. Toll’s wife, Jane, is an Obama delegate; he’s just along for the ride with his “honey,” he tells me. Of course, as a big donor, Toll is no mere sidekick. The night before, he’d seen Howard Dean speak to a group of fundraisers. (“We’ve met several times,” Toll says.) As we have a cup of coffee, former Philadelphia mayor John Street ambles by. “How’s our project coming?” he asks Toll, referring to Naval Square, a historic hospital that Toll Brothers is converting into 636 townhouses and condominiums. Toll claps Street on the back and says, “Why don’t you stop in and buy something?”

“It’s never been politically comfortable to be in the homebuilding business,” Toll tells me when he sits back down. It’s particularly hard to be a Democrat—he gets a lot of flak from his fellow homebuilders, who are mostly Republicans. But Toll unabashedly dishes the liberal Democrat line when he says he doesn’t mind paying higher taxes. “When we all get better, we’ll all get better,” he says.

Toll speaks in aphorisms and parables, and when he finds one he likes, he repeats it again and again. He used to tell a tale about financial cycles—the story from Genesis about the Pharaoh and Joseph, who prophesied that seven fat years would be followed by famine. “I would go to meetings and I would say, ‘Guys, you’ve had seven good years. It can’t go on,’ ” he says. “Well it did, and it did, and it did.”

Between 2004 and 2006, the cost of land was skyrocketing, but so were home prices, so Toll’s model seemed to work. He gave interviews in which he predicted that an ever-constricting land supply would force future generations to live with their parents into middle age. His company purchased ground in unlikely places like West Virginia and the Poconos on similar assumptions, thinking buyers would endure hours-long commutes to Washington and New York. It entered into joint-venture agreements with other homebuilders to develop enormous projects in hyperventilating markets like Las Vegas, which has fallen harder than perhaps any other locale—69 percent of all homes sold there last quarter went for a loss.

Toll Brothers executives say they glimpsed the first signs of a downturn in mid-2005. Analysts started wondering about the company’s position months before that, however, when Toll Brothers insiders began selling off stock. Over a sustained period between December 2004 and September 2005, Bob Toll made $323 million from these transactions, Bruce Toll made $206 million, and other company executives took home smaller amounts. At the time, the sales were explained as diversification and estate-planning measures, and Bob Toll continued to call his company “a tremendous buy.” The sales are now the subject of a federal shareholder lawsuit, about which Toll would not comment.

“It’s easy to sit and judge with hindsight,” Toll says, referring to his company’s strategic missteps. “Look, if I had followed the biblical pattern and stopped expanding after seven good years—I had seven years of expansion from ’91 to ’98—I would have missed ’98 to ’05. So you just can’t say to yourself, ‘I’m going to knock it off now because this is good enough.’ ”