Toll Bros. Sales Outlook Sinks Shares

Luxury home builder Toll Bros. Inc. cut its sales forecast for fiscal 2006 on Tuesday, triggering a sell-off in housing stocks amid fears that the nation’s real estate boom has peaked.

Some analysts, however, said Toll’s problems were company-specific. Some other builders, including Los Angeles-based KB Home and Irvine-based Standard Pacific Corp., recently raised profit estimates.

Horsham, Pa.-based Toll Bros. cited delayed openings for new developments and weakened demand in several markets.

Toll Bros.’ shares tumbled nearly 14% and other builders’ stocks dropped as well. KB Home fell 5.5% and Pulte Homes Inc. lost 8.9%. Stocks of related companies, including home improvement retailers and building material suppliers, also sank.

A national housing sector index, a benchmark maintained by the Philadelphia Stock Exchange based on share prices for 21 companies in the U.S. housing construction market, closed down 5.4%.

The index peaked in late July as mortgage rates began to rise, sparking concerns about a slowdown. It is 18% off its peak, and some home builders’ stocks have fallen even further.

The strong housing market is widely credited for having supported the economy for some time, but concerns about its sustained health have been increasing along with the upward creep of mortgage rates.

Rates on 30-year mortgages have climbed to the highest level in 16 months and have been above 6% for the last month.

Toll Bros. projected sales of 9,500 to 10,200 homes in fiscal year 2006, down from an earlier target of 10,200 to 10,600 homes. In fiscal 2005, it reported 8,769 homes sold.

“The shortage of selling communities, coupled with some softening of demand in a number of markets, negatively impacted our contract results,” said Robert Toll, chairman and chief executive.

“It appears we may be entering a period of more moderate home price increases, more typical of the past decade than the past two years.”

Houses in new communities were taking longer to go on the market, a delay the company attributed to an increasingly complex regulatory environment. About one-quarter of Toll Bros.’ communities have backlogs of at least 12 months for houses to be built, the company said.

For the fiscal year ended Oct. 31, Toll Bros.’ home building revenue climbed 50% to $5.76 billion, and contracts increased 27% to $7.15 billion.

Its shares dropped $5.50, nearly 14%, to $33.91, down from a 52-week high in July of $58.67. KB Home shares fell $3.71 to $63.74, and Pulte shares fell $3.70 to $37.77.