Builders See Signs of Stabilization Toll Brothers, Hovnanian Post Smaller Losses as Lower Prices Drive Sales

By JAMES R. HAGERTY and JOHN SPENCE


Home builders reported encouraging signs of stabilization in the housing market, but they cautioned that foreclosures and rising interest rates cloud the outlook.

Bloomberg News Rising unemployment and increases in the foreclosure rate remain big worries for housing. Above, a Toll Brothers development in Coppell, Texas.
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Two big builders, Toll Brothers Inc. and Hovnanian Enterprises Inc., said losses in the fiscal second quarter ended April 30 shrank from year-earlier levels as lower prices lured some buyers back into the market.

A report Wednesday from IHS Global Insight, a research firm in Lexington, Mass., said home prices on average fell at an annual rate of 2.2% in this year's first quarter, compared with a 12.5% rate in the fourth quarter of 2008. The report is based on price data from the Federal Housing Finance Agency. In the latest quarter, prices were down in 199 of 330 metropolitan areas examined in the study. In the fourth quarter, 312 metro areas showed declines.

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"While it's too early to see a bottom of this housing downturn," the report said, the latest data "may signal that the market is beginning to stabilize."

Among the biggest worries are rising unemployment and increases in the foreclosure rate. Foreclosure actions were initiated on 1.4% of first-lien home mortgages in this year's first quarter, up from 1.0% a year earlier, the Mortgage Bankers Association said last week. Meanwhile, after falling to their lowest levels since the 1950s, mortgage interest rates have increased. In the week ended May 29, the average interest rate for new 30-year fixed-rate mortgages jumped to 5.25% from 4.81% a week earlier.

Toll Brothers, based in Horsham, Pa., had a loss of $83.2 million for the fiscal second quarter ended April 30, compared with a loss of $93.7 million a year earlier. In the latest quarter, the builder of luxury homes booked pretax write-downs of $119.6 million, down from $288.1 million.

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Toll said its receipts of refundable deposits per community have been up from a year earlier in nine of the past 11 weeks. But, Toll added, "we believe that concerns about job security and the economy continue to inhibit traffic and the conversion of deposits to contracts."

Quarterly revenue plunged to $398.3 million from $818 million. The company declined to offer a profit outlook, citing uncertainty in the housing market.

Toll said it is starting to see more opportunities to buy land at attractive prices from banks. "Things are starting to loosen up," said Chief Executive Robert Toll in a conference call Wednesday.

Hovnanian late Tuesday reported a loss of $118.6 million for the fiscal second quarter ended April 30, largely due to write-downs of land values, compared with a year-earlier loss of $340.7 million.

Hovnanian, based in Red Bank, N.J., said the average number of sales contracts per community rose to 7.4 from 5.9 a year earlier. Even so, revenue was down 49% to $398 million.