Toll Brothers Inc., the nation's largest builder of luxury homes, yesterday lowered its forecast for 2006 home sales, partially because of softening demand, the latest sign that a shift may be underway in the nation's home-sales market.
The company's shares plunged 14 percent, to $33.91, on the news, and the overall stock market sagged. Booming sales of new homes have been a mainstay of the growing economy in the past four years.
"What people are afraid of is any softening . . . in what has been such a strong housing pattern, that this could be the beginning of a major retrenchment," said Robert P. Curran, senior director and homebuilding analyst at Fitch Ratings. Instead, he said, this is a "little bit of a backing off."
In a preliminary statement of its fourth-quarter financial results, Toll Brothers, one of the largest builders in the Washington area, said it expected to build 9,500 to 10,200 homes in its fiscal 2006, down from the 10,200 to 10,600 it had previously said it would build.
"Since Hurricane Katrina in early September we have observed buyers taking longer to make their purchasing decision," Toll Brothers said. "We attribute this change to the significant decline in consumer confidence in the last two months that was precipitated by the hurricanes and their aftermath, and to record gas prices."
The Horsham, Pa.-based company also blamed the decline on regulatory delays and said it already had more sales orders than it could fill. Toll Brothers noted that its revenue hit record levels last year and that its construction levels in 2006, even with the projected decline from expectations, would exceed the levels of fiscal 2005, when the company built 8,769 homes.
Joel H. Rassman, Toll's chief financial officer, said he believes investment analysts overreacted.
"We're returning to a normalized market from a superheated market. . . . This is not the beginning of a doom-and-gloom cycle for homebuilding," he said.
Industry observers, however, nervous about any sign of a weakening market, focused on the lower construction projections because economic growth in the past three years has hinged on high-paying construction, real estate and financial service jobs.
"This is certainly a canary in the mine shaft, and we'll see what happens to other canaries in the weeks and months ahead," said economist Charles W. McMillion, president of MBG Information Services.
One reason new-home sales may be slowing from their previous frenzied pace is that buyers have more choices because there are so many existing homes for sale. "We are transitioning to a buyers' market," said Rosario Carballo, a real estate agent with Fairfax Realty in Falls Church. "Right now buyers have a lot of houses to choose from."
The slowdown in the home sales market and the existing home market is visible outside the windows at the home of Danielle Weintraub, 38, a special education teacher, in Alexandria. A condominium building is under construction across the street from her home. Meanwhile, five for-sale signs have sprouted in the lawns of the homes around hers, even as construction trucks arrive.
"The market's so bad now nothing's selling," Weintraub said. She said 293 homes are for sale in her Zip code, up from 150 several weeks ago.
Tolls Brothers' announcement reflects a natural retrenchment in the home-building industry, according to some industry observers. NVR Inc., the region's largest home builder, reported last month that new orders in the Washington area fell almost 19 percent in the third quarter from a year earlier.
"Builders have been in a wait-and-see mode for the last 18 months," said Ken Wenhold, Virginia and Maryland director for Metrostudy, a Houston-based real estate consulting firm that specializes in the new-home market. "The market was fantastic, but they were waiting for the other shoe to drop. Now they're all nodding and saying, 'We feel the slowdown.' "
Wenhold said a survey of builders conducted by his firm, which will be released next week, found that customer traffic was down 15 percent in the third quarter compared with the same period one year earlier, and that sales contracts have dropped proportionately
He said he is waiting with interest for the regional multiple listing service sales and listing figures to be released tomorrow, as he believes they will show a significant increase in unsold homes around the region.
Toll Brothers' properties in the Washington area include Belmont Country Club in Loudoun County, Stratford Club in Leesburg and Dominion Valley Country Club in Prince William County.