"Twenty months into this housing downturn, we continue to facedifficult conditions in most of our markets. Although there isvariation among markets, our traffic this quarter on average hasbeen flat on a gross basis and down approximately 20% on a percommunity basis compared to last year's second quarter," Toll says."Still, "we expect to report a profit for our second quarter."

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The cancellation rate did decline for the quarter with 384cancellations, which was 19% of total signed contracts, compared to436 cancellations, or 30% of signed contracts, in the first quarterof the fiscal year, Toll says. Still, the numbers are higher thanthe 9% cancellation rate in the same quarter in the fiscal year2006. The bulk of the cancellations, 70%, were from contractssigned more than nine months ago. Some of the major reasons for whypeople cancel are a change in location or job or family problems,CFO Joel Rassman 17% could not sell their existing home, 16% had achange in job, change in location or family problems and 22% wouldnot give a reason or they were investors. Additionally, 12% ofcontracts were canceled by Toll because of permitting issues or a"backlog," Rassman says.

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Although cancellation rates are down, so are orders for newhomes. "March seemed slower to us than February and April wasslower than March. So, it seemed to us that we were not gettingbetter," Toll says. The company has stopped building specsingle-family, or detached, homes. "We are not building homes thatare not sold except to finish those where we have had cancellations[and] except for multi-family communities," Toll says.

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On average, Toll is giving $33,000 in incentives on homes withan average price of $680,000. Last quarter, the average incentivewas $31,000, Rassman says. Six months ago, the average amount ofincentives was $27,000, Toll says. However, there are some homeswhere no incentives are given, he says. "Each market is differentand, in fact, different section of each market is different," Tollsays. Some markets are improving, such as northern Virginia, orremain favorable. "Philadelphia is one of the few markets that areholding up pretty well for us," Toll says.

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