Cancellations Thump Toll Brothers

The average price on new home contracts fell 3% to $646,000. Toll blamed the drop on a shift to more condos being sold, which carry lower prices than single-family homes.

The company's cancellation rate rose to 39%. This compares to 37% a year ago, and 24% in the third quarter of this year. Toll said the cancellations were heavily concentrated in high-priced markets and product lines.

Bank of America analyst Daniel Oppenheim said the order decline was steeper than he expected. He projected a 21% drop.

"We continue to think Toll needs to lower prices aggressively near-term to boost sales in order to maintain a minimal backlog and work through its long land supply," Oppenheim wrote in a research note Thursday morning.

According to Oppenheim, Toll controlled 59,300 lots at the quarter's end, a 9-year supply based on trailing closings, and 13 years based on the closings he expects over the next four quarters.

"In a declining market, selling at what appears to be a low price today is better than selling at an even lower price tomorrow," Oppenheim said.