updated 8/9/2006 12:02:05 PM ET 2006-08-09T16:02:05

Luxury home builder Toll Brothers Inc. on Wednesday said third-quarter sales fell and signed contracts were cut nearly in half as the housing market continued to slow.

Shares of the Horsham, Pa.-based company fell on the news, and shares of other homebuilders also declined. Toll Brothers said home-building revenue fell by 0.5 percent to $1.53 billion and total revenue dipped by 1.2 percent to $1.54 billion. Sales headed lower in the Mid-Atlantic, Midwest, and California markets, while revenue in the Northeast, Southeast and Southwest was up.

In a sign that the housing market could see further erosion, the value of signed contracts fell by 46 percent to $1.07 billion, with all regions in the country weakening. The number of units was cut in half to 1,473 in the quarter.

The steepest drop was seen in Florida and the Carolinas, followed by the southwestern states of Arizona, Colorado, Nevada and Texas and the northeastern states of Connecticut, Massachusetts, New Jersey, New York and Rhode Island.

The company’s housing backlog also headed lower to 8,044 units from 9,727 units for the year-ago period. Backlog totals sagged to $5.6 billion from $6.6 billion.

Robert Toll, chairman and chief executive, expressed some surprise at the weakening.

“It appears that the current housing slowdown ... is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,” he said in a statement.

Toll previously had been guardedly optimistic about the housing market because the economy has remained on solid footing. Economic growth, among other factors, is key to robust home sales.

But Celia Chen, director of housing economics at Moody’s Economy.com in West Chester, Pa., said Toll Brothers’ experience is exacerbated by its high-end homes and its concentration in overheated housing markets.

“Those two factors are probably hurting Toll Brothers now more than other builders,” she said.

Chen still expects the housing market to have a soft landing, instead of a crash, pointing out that some regions, such as the Pacific Northwest, aren’t seeing the same steep declines.

“It’s going to be a slowdown that’s fairly controlled for most markets,” she said.

However, the housing market has gotten so hot in certain areas — driven by eager sellers and speculative buyers — it couldn’t be supported even by solid economic growth, Chen said.

For the fourth quarter, Toll Brothers is projecting that it will deliver fewer homes— between 2,500 to 2,800 homes compared to previous guidance of 2,900 to 3,300 deliveries. For its fiscal full-year, Toll Brothers said it will deliver between 8,600 and 8,900 homes.

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