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Toll tumbles as housing weakness lingers

Hank Paulson jumped the gun when he said earlier this week that the US housing slump has finally petered out, according to the chief executive of Toll Brothers.
/ Source: Financial Times

Hank Paulson jumped the gun when he said earlier this week that the US housing slump has finally petered out, according to the chief executive of Toll Brothers.

Robert Toll's criticism of the US Treasury Secretary came as Toll, the luxury homebuilder, said that net income plummetted 79 per cent in its second quarter.

"I was taken by surprise when the secretary of the Treasury said that the hard times were behind us ... I wondered where he got that information," Mr Toll said. "The bad times are not behind us yet."

Mr Paulson told CNBC this week that the housing slowdown is "largely" over and "contained".

Mr Toll's downbeat assessment on the US housing market came as data showed many more new homes were sold last month, but at much lower prices. Analysts suggested that the data reflected homebuilders' price-cutting efforts and a pick up in the sales of of cheaper homes, but said it was too early to call a bottom to the housing market.

Toll's dive in profits is the latest in a series of terrible results for US homebuilders as the housing slowdown has deepened in the wake of the subprime mortgage crisis.

DR Horton, the largest US homebuilder by sales, in April said its profits had fallen 85 per cent to $52m.

Toll said it earnings were weak in part becasue it has been holding back on making sales while it waits for an upturn in the market.

"We are not going to drop our drawers so that subcontractors and managers can have something to do," said Mr Toll. "We think when the market gets back, we'll be glad we held onto the good land." But he admitted that future price cuts were a possibility.

On a lighter note, the company said that the New York housing market was still in robust health, and that there were positive signs in Philadelphia, and Chicago. Meanwhile, the numbers of prospective homebuyers who cancelled purchases, while still more than double their historical average, had fallen for the third quarter in a row.

Toll warned two weeks ago that it was going to miss the quarterly and yearly earnings forecasts it issued in February. It now says that "uncertainty surrounding sales paces, and market direction" means that it cannot give earnings guidance for the next quarter or for the rest of the year.

Net income was $37m compared with $175m in the second quarter last year. Revenue fell 19 per cent to $1.17bn.

The company said it expected revenue of $4.26bn to $4.88bn this year and $990m to $1.28bn in the third quarter.