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HORSHAM, PA-Locally based Toll Brothers Inc. has had declining homebuilding revenues and signed contracts for the Q1 compared to the results from the Q1 of fiscal year 2006. Toll Brothers, the luxury home builder, reported a 19% drop in homebuilding revenues to approximately $1.17 billion and also approximately $1.17 billion in net signed contracts, which was a decline of 25% from fiscal year 2006 figures for the same quarter, Toll chairman and CEO Robert Toll said in a recent conference call.

“Twenty months into this housing downturn, we continue to face difficult conditions in most of our markets. Although there is variation among markets, our traffic this quarter on average has been flat on a gross basis and down approximately 20% on a per community basis compared to last year’s second quarter,” Toll says. “Still, “we expect to report a profit for our second quarter.”

The cancellation rate did decline for the quarter with 384 cancellations, which was 19% of total signed contracts, compared to 436 cancellations, or 30% of signed contracts, in the first quarter of the fiscal year, Toll says. Still, the numbers are higher than the 9% cancellation rate in the same quarter in the fiscal year 2006. The bulk of the cancellations, 70%, were from contracts signed more than nine months ago. Some of the major reasons for why people cancel are a change in location or job or family problems, CFO Joel Rassman 17% could not sell their existing home, 16% had a change in job, change in location or family problems and 22% would not give a reason or they were investors. Additionally, 12% of contracts were canceled by Toll because of permitting issues or a “backlog,” Rassman says.

Although cancellation rates are down, so are orders for new homes. “March seemed slower to us than February and April was slower than March. So, it seemed to us that we were not getting better,” Toll says. The company has stopped building spec single-family, or detached, homes. “We are not building homes that are not sold except to finish those where we have had cancellations [and] except for multi-family communities,” Toll says.

On average, Toll is giving $33,000 in incentives on homes with an average price of $680,000. Last quarter, the average incentive was $31,000, Rassman says. Six months ago, the average amount of incentives was $27,000, Toll says. However, there are some homes where no incentives are given, he says. “Each market is different and, in fact, different section of each market is different,” Toll says. Some markets are improving, such as northern Virginia, or remain favorable. “Philadelphia is one of the few markets that are holding up pretty well for us,” Toll says.

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