Toll Bros. to Miss Projections

Horsham, PA, May 10, 2007-- Toll Brothers, the nation's largest builder of luxury homes, warned that it won't meet prior earnings projections while homebuilders Hovnanian Enterprises Inc., Pulte Homes Inc. and D.R. Horton Inc. have reported similar malaise.

Toll placed part of the blame on stricter lending requirements that have been tough on buyers who want to upgrade but can't sell their current residences. Analysts said problems in subprime mortgages earlier this year have dampened a recovery.

"Twenty months into this housing downturn, we continue to face difficult conditions in most of our markets," Toll's chief executive officer, Robert Toll, said in a statement.

In addition to tighter lending standards, "lack of buyer confidence may have served to impede the glimmers of a rebound we had started to see in early February," he said.

Problems in subprime mortgages, which target borrowers with poor credit histories, have choked early indications of a recovery in the housing market.

"If we hadn't seen the problem in the subprime market, the spring selling season might have been a little bit more buoyant," said Celia Chen, director of housing economics at Moody's Economy.com in West Chester. "Some of the indicators were stabilizing earlier in the year and now I think the outlook has weakened."

The delinquency rate in subprime first mortgages rose to 22.4 percent in the first quarter after bottoming at 18.5 percent at the end of 2003, according to data collected by Equifax and Economy.com.

Subprime mortgages had helped drive housing demand at the tail end of the boom, from 2005 through last year. As the housing market reached a crescendo, home loans became more accessible for people with poor credit.

But as defaults rose, lenders started pulling back on the easy money. A survey of bank loan officers by the Federal Reserve showed that the net percentage of banks tightening standards for mortgage loans jumped to 16.4 percent in the first quarter from 1.9 percent at the end of 2006.

"Lenders are being more circumspect," Chen said.

She expects the housing correction to last until the end of 2008, with prices falling by 3.6 percent this year and 2.9 percent next year. The market peaked in mid-2005.