If you don't think the housing market has cooled off dramatically, just ask Robert Toll. For the second time in recent months, the leading home-building company that Toll runs has been forced to cut its forecast for new-home construction in 2006.
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Toll Brothers, based in Horsham, Pa., now says it will deliver only between 9,200 and 9,900 new homes in the current fiscal year, which ends on October 31. This is down from the luxury home builder's earlier estimate of 9,500 to 10,200 new homes. Of course, that prior estimate was itself lowered from an original forecast of 10,200 to 10,600 new homes in 2006.
Merrill Lynch analysts immediately downgraded their recommendation on Toll Brothers' stock from "buy" to "neutral."
"Selling homes this first quarter was certainly more difficult than one year ago," said CEO Toll. He noted that "we experienced softening demand, to varying degrees, in a number of markets and continue to be constrained by long delivery times at many of our communities."
Toll said that in many cases, it takes 11 months or more to complete construction on newly purchased homes. While home buyers used to be willing to wait when speculation was running rampant in the housing market, it's no longer the case. "We believe when expectations of home price appreciation are strong, buyers are willing to wait a year or more for their homes," he said. "When their expectations are more modest, they are less willing to commit so far in the future."
Indeed, Toll reported that the dollar value of its newly signed contracts in the first quarter fell by 21 percent versus the same period last year.
In early trading Tuesday, Toll shares lost around 2.5 percent of their value. This isn't terribly surprising. Over the past three months, home-building stocks have been among the worst performers on Wall Street, as investors are finally coming to grips with the fact that real estate mania is likely over.
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