U.S. home builder cuts sales forecast

Market weakening after 5- year boom Rising interest rates curbing demand

Toll Brothers Inc., the largest U. S. luxury home builder, cut next year’s sales forecast, saying the housing market is weakening after a five- year boom. The forecast was cut by a range of 3.8 per cent to 6.9 per cent because of “ some softening of demand” and delays in opening new communities, the Horsham, Pa.- based company said. Its shares dropped as much as 14 per cent, the most in seven years, dragging down rivals including Pulte Homes Inc. and D. R. Horton Inc.

Rising interest rates, which make mortgages more costly, are starting to curb home sales, which have hit new highs each year since 2001. The boom has accounted for 50 per cent of U. S. economic growth and more than half of private payroll jobs created in the past five years, Merrill Lynch & Co. estimated earlier this year.

“ There are two schools of thought here, and one is that there’s a housing bubble and it’s going to break severely,” said Seth Glickenhaus, senior partner at Glickenhaus & Co., which owns shares of Pulte, Centex Corp. and D. R. Horton. The other says “demand is pretty great and the correction won’t be significant. I’m in the latter group.” Home building stocks have fallen 18 per cent since their peak in late July on concern that sales and prices were headed lower. The Mortgage Bankers Association last week said its measure of home- purchase applications fell to the lowest level since February. The gauge has declined in six of the past seven weeks.

Rising home prices help fuel the economy as owners tap their equity to pay for goods and services such as cars, vacations and college tuitions. Owners will extract about $ 114 billion in home equity next year, about half of the $204 billion estimated for this year, according to the latest forecast from economist at Freddie Mac, the second-biggest source of money for U. S. residential mortgages.

“ It appears we may be entering a period of more moderate home-price increases, more typical of the past decade than the past two years,” Robert Toll, the company’s chief executive, said in a release.

Toll cut its forecast of the number of homes it will sell in fiscal 2006 to 9,500 to 10,200, from the 10,200 to 10,600 it projected on Aug. 25. In the year ended Oct. 31, Toll sold 8,769 homes.

U. S. sales of new houses probably will fall to 1.19 million in 2006, from 1.27 million this year, said mortgage financing firm Fannie Mae.