Major Builder Reports 19 Percent Drop in Profit

Toll Brothers, the largest U.S. luxury home builder, which has many projects in South Florida, said this week that its fiscal third-quarter profit fell 19 percent.

That represents the giant’s first decline in more than four years as higher Florida mortgage rates have meant an abrupt end to the housing boom.

The company’s net income for the three months ending July 31 declined to $174.6 million, or $1.07 per share, down from $215.5 million, or $1.27. Earnings exceeded analysts’ estimates, however, and the stock rose 1.7 percent. Revenue fell to $1.53 billion from $1.55 billion.

Toll Brothers cut its forecast for fourth-quarter profit as rising Florida home mortgage costs reduced demand for its houses, which sell for as much as $1.5 million. The market for second and expensive homes was the first to slow as wealthy buyers deferred purchases.

After 17 interest rate hikes by the Federal Reserve in the last two years, the number of new unsold single-family homes is at an all-time high.

“Home buyers are having a crisis of confidence… Even if they want to buy a house, they’re worried they can’t sell the house they’re in,” said Sam Lieber, Chief Executive of Alpine Management and Research in Purchase, N.Y., which owns 800,000 shares of Toll.

Toll Brothers shares are down 27 percent this year, compared with a 33 percent drop in the Standard & Poor’s composite index of 16 major home builders.

“They beat expectations, and that’s why we’re seeing the stock rise, but it’s important to remember that they beat lowered expectations,” said Alex Barron, a home building analyst with JMP Securities LLC in San Francisco.

A telling sign: Florida leads the nation in the growth of new housing units by volume, and a record 566,000 new U.S. houses were for sale at the end of June, the Commerce Department said in a July 27 statement.

“The continuing malaise in the housing market, we believe, is the result of an oversupply of inventory,” CEO Robert Toll said in the statement.

Sales of new houses probably will fall 11 percent to 1.14 million in 2006 after reaching an all-time high of 1.28 million last year, David Berson, chief economist of Fannie Mae, said August 16. The average rate for a 30-year fixed Florida mortgage is around 6.5 percent now and is expected to stay between that and 7 percent through 2007.