Toll’s Homebuilding Revenue Slips As Demand for Luxury Houses Wanes

Toll Brothers, Inc., the largest American luxury home–builder, said homebuilding revenue in the third quarter fell for the first time in four years as rising mortgage rates and swelling inventory hurt demand for real estate.The 0.5% decline in revenue from home sales to $1.53 billion sparked the biggest drop in the company’s shares in nine months, on concern Toll may report lower profits for the first time since 2002. The company, whose houses costs triple the American average, will release its earnings on August 22.Higher mortgage rates have decimated real estate demand, resulting in an oversupply of homes as people put off purchases.Toll’s wealthy buyers are waiting to see what effect the housing falloff will have on the economy, an analyst at Susquehanna International Group in Chesterfield, Miss., Stephen East, said. The impact on builders of cheaper homes may be even greater, he said.“The Toll consumer is not particularly impacted by interest rates like the lower–end consumer is,” Mr. East said. “The luxury–end started suffering earlier than everybody else” as the confidence of wealthy buyers waned, he said.The Federal Reserve on Tuesday cited a “cooling” of the housing market in its decision to keep the benchmark American interest rate unchanged at 5.25% after two years of increases. Nationally, the number of unsold new houses rose 24% to 566,000 in June, according to the Commerce Department.Shares of Toll fell $1.70, or 6.4%, to $24.88 in New York Stock Exchange composite trading as of 4:02 p.m. The Standard & Poor’s Supercomposite Homebuilding Index of 16 companies declined 4.5%, led by Hovnanian Enterprises Inc., New Jersey’s largest homebuilder, Toll, and Ryland Group Inc.,which markets to first-time buyers.An index measuring American applications to purchase homes stood at 388.9 last week, down 27% from a peak in June 2005, the Mortgage Bankers Association in Washington said yesterday.Toll said orders for houses, a gauge of future revenue, fell 48% from 2,705 to 1,400 in the quarter, excluding unconsolidated partnerships, the third consecutive year-over-year decline following 10 quarter of gains.Mr. East expects Toll to earn $1.20 per share for the quarter when it reports in two weeks, down from $1.27 it earned a year earlier, and $4.54 for 2006, down from $4.78.The average estimate of 14 analysts surveyed by Thomson Financial is $1.15 a share for the quarter and $4.69 for the year.“Nervous buyers are canceling contracts for homes already under construction,” the builder’s chairman and chief executive officer, Robert Toll, said on a conference call with analysts and investors. The downturn “appears as though it will last for at least six months more, or it could last for 2 years more,” he said.Markets such as Orlando, Fla., Las Vegas, Nev., and Phoenix, Ariz., has seen the highest levels of cancellations, he said.Toll’s homebuilding revenue, excluding condominiums and joint ventures, fell 3.1% to $1.49 billion. Toll sold 2,157 homes in the quarter at an average price of $690,000 compared with 2,310 houses a year earlier at an average of $665,000. The backlog of houses ordered and not yet delivered was 7,362 units, valued at $5.2 billion, down from 9,330 units valued at $6.3 billion.

Toll’s Homebuilding Revenue Slips As Demand for Luxury Houses Wanes

Toll’s Homebuilding Revenue Slips As Demand for Luxury Houses Wanes

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