Toll Brothers (NYSE: TOL - News) , the largest US builder of luxury homes, reported preliminary third quarter sales on Wednesday that were stronger than expected and said fewer customers were cancelling orders for new homes.

Sales fell 34 per cent to $797m, better than the $735m analysts had expected. Its backlog of homes agreed for sale was down 52 per cent at $1.75bn. New orders continued to fall steeply - down 27 per cent. However impairments on land and homes are expected to be between $100m-$200m - not as bad as most analysts had forecast.

"Our third-quarter results for revenues, contracts and backlog reflect the continued weakness in most of our markets," said Robert Toll, chief executive. "However, we believe there is growing pent-up demand from those who have postponed buying during the past three years. For example, when we run promotions and work the phones for a market, our rate of deposits improves significantly."

New home sales are still falling in the US compared with last year, but the pace of sales has been fairly steady since last November and the inventory of homes for sale is falling, suggesting that the market is beginning to level out.

Toll Brothers' cancellation rate remained high in the quarter, but fell to 19.4 per cent compared with 24.9 in the previous quarter and 23.8 per cent a year ago.

The company highlighted the total number of cancellations was at its lowest in two years, calling it a "positive sign". However, lower cancellations came as fewer people agreed to buy Toll homes. "If you have dramatically lower orders, you'll also have lower cancellations on an absolute basis," said Michael Rehaut of JPMorgan Chase.

Toll has been better placed to deal with the downturn in US housing than other major homebuilders because it sells more expensive homes that appeal to buyers more resistant to a weakening economy and less reliant on subprime mortgages or other forms of lending provided to people with poor credit histories.

Some of its main competitors are smaller custom builders who are suffering more in the current market as they are generally more geographically concentrated, while banks are less likely to be prepared to make concessions over credit.

David Goldberg, an analyst at UBS said that this "outperformance suggests that Toll is gaining share as conditions deteriorate, in line with our view that the company's primary competitors - smaller custom builders - would be more significantly impacted by rising capital constraints."

Meanwhile, builders such as KB Home, DR Horton and Pulte all sell similar and cheaper homes mainly aimed at the less well-off.

It has also taken a different tack to other homebuilders during the downturn, seeking to maintain pricing, avoid large scale incentives, and has resisted taking writedowns on the value of its land, even as its competitors discounted prices and recorded huge impairments.

However, some analysts think that because Toll has resisted lowering prices now and is taking deeper writedowns, it may be forced to take greater losses in the future.

Michael Rehaut said he expected impairments on homes and land charges to increase "given our outlook for … continued challenging market conditions going forward."

Toll Brothers' shares were trading down 1.5% at $ 20.32 in lunchtime trading in New York.