Toll Brothers sees lower home-building revenue

By Ilaina Jonas

NEW YORK (Reuters) - Toll Brothers (TOL.N) said on Thursday that it expected to report a 36 percent drop in quarterly home-building revenue, while net orders for new homes fell more steeply than in prior quarters, reflecting last month's deepening decline in the U.S. housing market.

Based on preliminary results, Toll said home-building revenue for the fourth quarter ended on October 31 was about $1.17 billion.

Because of its fiscal calendar, Toll is one of the first major home builders whose quarterly reporting period includes October's activity. Investors use it as an indicator of industry performance.

"We and other reporting builders have observed that October's activity appeared weaker than September's," Toll Chief Financial Officer Joel Rassman said in a statement. "These trends suggest that we still have challenging times ahead."

The company, the largest U.S. luxury home builder, signed 1,073 contracts -- a predictor of future business -- during the fourth quarter, down about 33 percent from a year earlier. The value of the contracts fell 38 percent to $693.7 million.

After canceled orders, net new contracts fell 35 percent to 656 homes -- a decline much steeper than the mid 20s percentage rate of the two prior quarters. Their value dropped 48 percent to about $365.2 million.

"An inability to obtain mortgages does not appear to be a major factor for our buyers, although it may affect our buyers' buyers," Chief Executive Robert Toll said in a statement. Other builders have attributed high cancellation rates to buyers' inabilities to obtain a mortgage.

The average price of a Toll home under contract was $557,000 after cancellations, which typically involved higher-priced single-family homes with an average value of $788,000, rather than lower-priced condominium apartments.

The average price of a home under a contract before cancellations was $646,000, down from $667,000.

Toll Brothers said its backlog at October 31 was about $2.85 billion, down 36 percent.

"We can't predict how long this down period will last, but the foundation of the housing market -- primarily solid demographics -- have remained strong," Robert Toll said.

MARKET DETERIORATION

On Tuesday upscale Hovnanian Enterprises Inc (HOV.N), which follows the same fiscal calendar as Toll, said net contracts fell 10 percent to 2,781 homes, sales slid 19 percent to 3,969 homes and its cancellation rate rose to 40 percent from 35 percent in both the prior year and quarter.

"Clearly all these guys are hurting," said Weiss Research analyst Mike Larson. "When you look at the balance of Toll's comments and some of the other builders, it looks like things are getting sequentially worse, not better."

For more than a year and a half, home construction has fallen sharply on weakening demand and rising prices. Problems in subprime lending -- loans to those with sketchy credit histories -- have made it even more difficult for potential buyers, even those with good credit, to get a mortgage.