HORSHAM, PA-"Demand, while obviously diminished, has not disappeared," said Toll Brothers Inc.'s chairman and CEO Robert I. Toll during a second-quarter earnings conference call. While net income and total revenues for the locally based luxury homebuilder set record gains during the quarter, signed contracts dropped 29% compared with the same quarter a year ago.

Toll said the company was experiencing "our ninth month of slower sales in most of our markets, and, in most cases, buyers are looking for a deal." Uncertainty over the direction of home prices, he said, has led to a "lack of urgency" and "is keeping many potential buyers on the sidelines."

Nevertheless, the company's net income rose 3% to $174.9 million, and total revenues were up 17% to just north of $1.4 billion for the quarter. For the six months ended April 30, income was up 21% and revenues rose 25%, compared with the same six months a year earlier.

Second-quarter signed contracts this year totaled nearly $1.6 billion, compared with contracts totaling $2.2 billion for the same quarter a year ago. Traffic levels in the company's communities were down between 20% and 30% during second quarter and are trending the same in third quarter, a pattern that has been taking place for three years, Toll said.

The company has revised its full-year 2006 estimate to between 9,000 and 9,700 home deliveries and income of between $780 million and $850 million. "While this is slightly down from our earlier guidance," said Joel H. Rassman, CFO, "it would still be our best or second-best year ever."

During second quarter, 11% of buyers paid cash, which is similar to a year ago. The average selling price for a Toll home is expected to be between $675,000 and $685,000 during the third quarter of this year and between $690,000 and $700,000 during fourth quarter. Due to increased costs of labor and material, Rassman said the cost of building a house has increased approximately $7,000, "and we expect it to escalate."

Despite a slowdown in sales, the company is increasing its number of communities from 230 in 2005 to an anticipated 295 this year. "Since newer communities generally offer greater choice and shorter delivery times, we believe this expansion will lead to more sales," Toll said. To keep the pipeline filled, the builder controls about 91,000 lots, of which 51% are optioned and 49% owned.