Builder sees spike in buyer back outs

PITTSBURGH -- Toll Brothers, the nation's largest builder of luxury homes, said Wednesday its third-quarter profit plunged nearly 85 percent as the housing downturn and credit worries triggered cancellations and hefty writedowns.

The company's chairman and chief executive said the quarterly cancellation rate, which rose to nearly 24 percent, was greater than at any point in the 21 years the company has been traded publicly.

Toll Brothers said earnings for the three months ended in July sank to $26.5 million, or 16 cents per share, from $174.6 million, or $1.07 per share, during the same period last year.

The company was forced to write down property at a cost of $88.5 million, or 54 cents per share, compared with $14.6 million, or 9 cents per share, during the year-ago quarter. Excluding writedowns, earnings were 70 cents per share.

Sales fell 21 percent to $1.21 billion from $1.53 billion in the prior year.

Better margins helped Toll beat the 5 cents per share expected by analysts, according to Reuters Estimates. Toll Brothers shares rose $1.06, or 5 percent, to $22.15 Wednesday.

"We continue to wrestle with the interrelated challenges of softer demand and excess housing supply in most markets," Chairman and Chief Executive Robert Toll said in a statement.

Nearly two years into the housing slump, which started with defaults by subprime borrowers, most markets remain weak, he said earlier this month.

The number of visits to communities of Toll Brothers' model homes has been "horrible" recently, Toll said. "Traffic is pretty stinky out there," he said.

Analysts have said Toll Brothers, which has a mortgage-lending business, is less affected by subprime borrower problems than it is by buyers with so-called jumbo loans, which have become harder to get as credit markets constricted in the last month. Jumbo loans exceed $417,000. The average price of a Toll Brothers home is about $670,000.

"We, along with many others, are concerned about the dislocation in the secondary mortgage market," Toll said Wednesday. "However, we believe that our buyers generally should be able to continue to secure mortgages, due to their typically lower loan-to-value ratios and attractive credit profiles."