May 9 (Bloomberg) -- Toll Brothers Inc., the largest U.S. builder of luxury houses, said fiscal second-quarter homebuilding revenue fell 19 percent as buyers walked away from planned purchases.

Homebuilding revenue declined to $1.17 billion in the three months ended April 30 from $1.44 billion a year earlier, the Horsham, Pennsylvania-based company said today in a statement. Toll Brothers plans to report its second-quarter earnings May 24.

Toll Brothers and other homebuilders are seeing potential buyers walk away from deposits on houses, concerned that the value of the home will drop. The cancellations force builders to use sales incentives to attract buyers for houses that are finished or close to being completed, reducing profit margins.

``Cars aren't supposed to appreciate, houses are supposed to appreciate,'' Jack Lake, equity research analyst at Victory Capital Management Inc. in Cleveland, whose $226 million Victory Value Fund owned 92,500 shares of Toll at the end of March, said before the earnings were released. ``You need to see some kind of price stability.''

Revenue was estimated at $1.1 billion, according to the average of 10 analysts surveyed by Bloomberg.

Shares of Toll Brothers rose 27 cents to $29.21 yesterday in New York Stock Exchange composite trading. They're down 2.2 percent over the past year.

Toll Brothers' cancellation rate fell to 19 percent in the quarter from 30 percent in its fiscal first quarter and 37 percent in its fiscal fourth quarter. Chief Executive Officer Robert Toll said on Feb. 8 the company's historical average of cancellations is about 7 percent.

U.S. existing home prices are forecast to fall more than previously estimated because of the drop in subprime mortgage lending and the adoption of stricter loan standards, the National Association of Realtors said on May 8.

The 2007 median price for an existing home likely will drop 1 percent to $219,800 from 2006, compared with its earlier forecast of a 0.7 percent decline, the Chicago-based association said in a report. It projects the median price for new homes to fall $100 to $246,400, the first decline since 1991, from its previous estimate of a 0.4 percent increase.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net.

Last Updated: May 9, 2007 05:13 EDT