Homebuilders are feeling quite gloomy, as they’re finding a lack of buyers as mortgage rates continue to rise above 7%. Confidence among builders dropped for the 10th month in a row in October.
It’s a tough time to be selling a home. That’s also true for home builders, who are seeing canceled orders and dwindling interest among would-be buyers.
Cancellations by property developers are also up, Lovallo noted. KB Home KBH, -0.35% reported a 35% cancellation rate in the third quarter, up from 9% a year ago. Lennar said 21% of orders are being canceled, while Meritage Homes MTH, +0.05% reported a 30% cancellation rate. Ali Wolf, chief economist at Zonda Research, tweeted Thursday afternoon that her data shows a 70% cancellation rate among builders in Phoenix.
Has it worked? “We’re starting to see some demand elasticity, which is encouraging,” Lovallo said. “There is a tremendous amount of underlying demand for housing that’s still out there.” Being able to move into a home within 30 to 60 days also helps the buyer when it looks like rates will keep rising. Building a home to order could take six to nine months. Yet builders also have to contend with big backlogs and need to move inventory fast.
Home building is ripe for disruption It’s time home builders explored some innovation, Lovallo told MarketWatch. “Fewer homes were built over the past 14 years” since the 2008 recession, he said, “and the ones that were built were built at higher price points, because that’s where the demand was.” Even though builders are seeing cancellations rise, buyers shouldn’t expect home prices to drop significantly, Lovallo advised.
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