Shares of homebuilders took a hit on Tuesday after Toll Brothers Inc. said new orders fell in the first quarter and home deliveries this year would be weaker than expected.

The Philadelphia Housing Sector Index, a national index based on share prices for 21 companies, fell by more than 1 percent as investors worried about signs the housing market has cooled. Shares of Toll Brothers sank $1.73, or 5.5 percent, to close at $29.47 in trading on the New York Stock Exchange.

"Without question, the housing market has peaked out," said Gregory Gieber, an analyst at A.G. Edwards. "However, I think it will be a modest decline."

The National Association of Realtors said Tuesday that home sales in 2006 are expected to fall from last year but remain historically robust as the sector slowdown continues.

"Right now, home sales are a little lower than projected, but they can be sustained around current levels," David Lereah, the group's chief economist, said in a statement.

Existing-home sales are projected to fall by 4.7 percent to 6.74 million this year, while new home sales should fall 8.5 percent to 1.17 million units, the Realtors group said.

NAR also expects the 30-year fixed-rate mortgage to hit 6.9 percent by the end of the year.

Last week, Freddie Mac said 30-year fixed-rate mortgages averaged 6.23 percent nationally, with an average 0.5 point, for the week ending February 2. That's up from the prior week's average of 6.12 percent and 5.63 percent a year ago.

Toll Brothers said new orders in the first quarter fell by 21 percent to $1.14 billion, in part as speculative buyers in certain markets have become sellers.

The Horsham, Pa.-based homebuilder also said it expects to deliver 9,200 to 9,900 homes in 2006, down from the originally projected 9,500 to 10,200 homes. In 2005, Toll delivered 8,769 homes.

Deliveries fell below the company's projection due primarily to delays in obtaining certificates of occupancy, construction inspections and utility hook-ups.

"Selling homes this first quarter was certainly more difficult than one year ago," said Robert Toll, chairman and chief executive, in a statement. "We experienced softening demand, to varying degrees, in a number of markets and continue to be constrained by long delivery times at many of our communities."
"Although demand is not as strong as it was one year ago, most of our markets remain fundamentally healthy, based on job and income growth data," Toll said.

In the quarter, Toll's home-building revenue rose by 35 percent to $1.33 billion, but analysts surveyed by Thomson Financial expected to see $1.38 billion, on average.

The homebuilder said its backlog as of Jan. 31 rose 22 percent to about $5.95 billion.

Gregg Schoenleber, an analyst at Deutsche Bank, said performance should stabilize once speculators are shaken out in about three to four quarters.

He still likes housing stocks, because the economic underpinnings of the sector remain sound.

"All the builders that have reported so far over the last month are on average growing new orders by 8 percent," Schoenleber said. "As long as the local economy remains robust, things are fine."

"The catalyst is the Fed officially saying we're done with rate increases," the analyst added.

Toll Brothers will announce final first-quarter results and update its earnings guidance on Feb. 23.

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