Luxury home builder Toll Brothers Inc reported a narrower-than-expected quarterly loss on Thursday, but shares fell amid concern about the extent that price cuts were supporting sales.

Toll's third-quarter net loss widened to $472.3 million, or $2.93 per share, from a net loss of $29.3 million, or 18 cents per share, a year earlier.

The results included deferred tax asset valuation allowances of $439.4 million and writedowns totaling $115 million.

The loss was slightly narrower than the $3.03 per share loss analysts had expected, according to Reuters Estimates.

However, analysts noted the company's average home prices were down from the prior quarter and, as a result, so were gross margins.

The company sold 792 homes in the quarter at an average price of $582,500, down more than 5 percent from the prior quarter, Soleil Equity Research analyst Anna Torma said in a note to clients. Homebuilding gross margins fell to 18 percent from 21.8 percent in the fiscal second quarter.

Revenue was down 42 percent to $461.4 million. Toll reported preliminary revenue figures earlier this month.

For the first time in three years the number of homes in its backlog grew compared to the prior quarter, the company said.

Toll is one of the first homebuilders to offer a snapshot of August demand. It said deposits -- a non-binding precursor to contracts -- were up 26 percent in the first four weeks of its fiscal fourth quarter.

We do see signs for optimism, Chief Executive Robert Toll said in a statement.

HOME BUILDERS' RALLY

The company said it would not provide specific forecasts, but said sales would be below last year's level in the quarter now underway. It said it would deliver between 475 and 725 homes in the quarter.

Shares of homebuilders have rallied in recent months on expectations the sector has turned a corner. Home prices are up in many markets, sales have picked up nationally, and more Americans are filing mortgage applications.

An index of home construction stocks <.DJUSHB> is up about 93 percent from March 5th, compared to a 50-percent advance by the broad Standard & Poor's 500 index in that time frame.

But some market strategists say caution is warranted.

Unemployment is going to stay pretty high. The consumer is still in fairly difficult straits, said Randy Bateman, Chief Investment Officer of Huntington Funds.

If you look at demographics, there's going to be a need for incremental housing, he said. But that may take another year or so, so investors (may not be) complacent enough to wait for the numbers to reflect improvement.

Investors might lose patience and dump some of the stocks, he said.

Toll shares were down 14 cents to $24.41 in early trading after falling as much as 3.6 percent in premarket trading.

(Reporting by Nick Zieminski and S. John Tilak in Bangalore; editing by John Stonestreet and Derek Caney)

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