Toll Brothers, the largest American builder of luxury homes, reduced next year’s sales forecast, saying the housing market is weakening after a five-year boom.

Its shares fell 14%, the most in seven years. The sales forecast was cut by a range of 3.8% to 6.9% because of “some softening of demand” and delays in opening new communities, the Horsham, Pa.-based company said yesterday in a statement. The shares of rivals including Pulte Homes and D.R. Horton also fell.

Interest rates are rising, making mortgages more costly and curbing home sales, which have hit highs each year since 2001.

The housing market has accounted for 50% of economic growth in America and more than half of private payroll jobs created in that period, Merrill Lynch & Company estimated earlier this year.

“Prices pre-Katrina were at warp speed,” the chief executive of Toll Brothers, Robert Toll, said on a conference call yesterday. “Since Katrina, instead of going up $5,000 to $10,000 every week or two, we have been limited to no price increases or very limited price increases.” Toll’s homes cost more than double the American average.

Homebuilding stocks had fallen 18% since their peak in late July on concern that rising interests had taken the air out of the market. The average fixed rated on a 30-year mortgage topped 6% last month for the first time since April 2004.

The rate was 6.3% last week, compared with 5.8% a year earlier.

The 16-member Standard & Poor’s Supercomposite Homebuilding Index fell 65.53, or 7.5%, to 811.36 yesterday. It was the biggest decline since August 2003.

Toll’s shares fell $5.50 to $33.91 in New York Stock Exchange composite trading, after declining as low as $33.71 earlier in the day. Pulte Homes, the largest American homebuilder, fell 8.9% to $37.77. D.R. Horton, the no. 2 builder, dropped 9.3% to $30.60. Centex, the third-largest, declined 6.5% to $66.52.

“There are two schools of thought here, and one is that there’s a housing bubble and it’s going to break severely,” said Seth Glickenhaus, senior partner at Glickenhaus & Company, which owns shares of Pulte, Centex, and D.R. Horton. The other says “demand is pretty great, and the correction won’t be significant. I’m in the latter group.”

A co-founder of Toll, Bruce Toll, who left in 1998 to start his own real estate company, sold 502,480 shares earlier this year, according to a September 29 regulatory filing, leaving him with a 5.2% share of the builder. Robert Toll owned 18.1 million shares, or 11.6% of the outstanding stock, as of August 31.

The Mortgage Bankers Association last week said its measure of home-purchase applications dropped to the lowest level since February. The gauge has declined in six of the last seven weeks.

Rising home prices help fuel the economy as owners tap their equity to pay for goods and services such as cars, vacations, and college tuitions. Owners will convert about $114 billion in home equity into cash next year, about half of the $204 billion estimated for this year, according to the latest economic forecast from Freddie Mac, the second biggest source of money for residential mortgages in America.