Toll Brothers, known for its resistance to slashing prices to move inventory, saw its average contracted price after cancellations hit a six-year low of $534,000 per home. Higher incentives, fewer sales of high-priced homes and a change in product mix to lower-priced units reduced the average price.
"We can't predict that the recovery is around the corner," Chief Executive Robert Toll said in a conference call with analysts. If builders see a light at the end of the tunnel, it could be "the train coming toward you," he said.
While buyers are attracted by promotions and put down deposits, "a lack of confidence in the direction of home prices overcomes their enthusiasm" and they don't go to contract, Toll said.
Consumers aren't making real estate deals, but neither is Toll Brothers. The builder said it is looking for land deals, but hasn't yet seen the "high-end communities at bargain prices" it likes.
Toll said the builder had considered combining with another company and remains open to the idea.
"We dipped our toes in the water, chatted it up a little bit," he said. "So far we're very happy where we are, but it's not ruled out."
Toll Brothers expects pretax write-downs of $225 million to $375 million in the second quarter, to adjust the value on its books of homes it can no longer sell at a profit.
The second-quarter backlog of homes ordered but not yet delivered was cut in half to $2.08 billion.
Its earnings will be released June 3.
Geographically, sales fell 45 percent in the southern states of Florida, Georgia, the Carolinas and Texas. The mid-Atlantic, covering Pennsylvania, Delaware, Maryland, Virginia and West Virginia, was down 39 percent.
The west, comprising California, Arizona, Colorado and Nevada, fell 28 percent.
Toll's northern region of New Jersey, New York, Connecticut, Rhode Island, Illinois, Massachusetts, Michigan and Minnesota was down 3.3 percent.
Net contracts, an indication of future business, fell 79 percent in the north, 62 percent in the west, 44 percent in the mid-Atlantic and 31 percent in the south. A bright spot is Manhattan, where Toll said homes have temporarily sold out.
Toll's results were "solidly worse than our estimates," Michael Rehaut, a JPMorgan analyst, said in a research note. "We continue to expect further price cuts and large impairment charges at least through the end of this year for Toll and the industry."
Shares of Toll Brothers fell 10 cents, or less than 1 percent, to $23.27.
(Copyright 2008 by The Associated Press. All Rights Reserved.)
