Toll Brothers Inc., the largest U.S. builder of luxury homes, on Tuesday reduced next year's sales forecast, saying the housing market is weakening after a five-year boom. Its shares fell 14 percent, the most in seven years.
The sales forecast was cut by a range of 3.8 percent to 6.9 percent because of "some softening of demand" and delays in opening new communities, the Horsham, Pa.-based company said. The shares of rivals including Pulte Homes Inc. and D.R. Horton Inc. fell about 9 percent.
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 percent of U.S. economic growth and more than half of private payroll jobs created in that period, Merrill Lynch & Co. estimated earlier this year.
"Prices pre-Katrina were at warp speed," Toll's chief executive, Robert Toll, said on a conference call Tuesday. "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 U.S. average.
Toll lowered its forecast of the number of homes it will sell in fiscal 2006 to 9,500 to 10,200, from the 10,200 to 10,600 it projected on Aug. 25. In fiscal 2005, which ended Oct. 31, Toll sold 8,769 homes.
Toll sold 2,957 homes in the most recent quarter, 23 percent more than a year ago. The average price was $679,742 — 13 percent more than a year earlier. The average U.S. sale price of a new home sold in September was $285,700, the Commerce Department said last month.
Homebuilding stocks had fallen 18 percent since their peak in late July on concern that rising interests had taken the air out of the market. The average fixed rate on a 30-year mortgage topped 6 percent last month for the first time since April 2004. The rate was 6.3 percent last week, compared with 5.8 percent a year earlier.
On Tuesday, the 16-member Standard & Poor's Supercomposite Homebuilding Index fell 65.53, or 7.5 percent, to 811.36. 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 Inc., the largest U.S. homebuilder, fell 8.9 percent to $37.77. D.R. Horton Inc., the No. 2 builder, dropped 9.3 percent to $30.60. Centex, the third-largest, declined 6.5 percent 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 & Co., which owns shares of Pulte, Centex Corp. and D.R. Horton. The other says "demand is pretty great and the correction won't be significant. I'm in the latter group."
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 forecast from economist at Freddie Mac, the second-biggest source of money for U.S. residential mortgages.
U.S. sales of new houses probably will fall to 1.19 million in 2006, after reaching an all-time high of 1.27 million this year, according to a forecast by Fannie Mae. The median price for a new home will rise to $236,500 in 2006, a gain of 3.7 percent, the mortgage buyer said in an Oct. 12 forecast. Fannie Mae said prices will end this year with an increase of 4.7 percent.
Toll, the No. 6 U.S. homebuilder by stock market value, typically issues preliminary revenue figures in advance of its earnings report, scheduled for Dec. 8.