Home cancellations hit builders hard

The rate is at least double what it was last year
By STEPHEN FRATER

stephen.frater@heraldtribune.com
Ripping up a contract, abandoning a deposit and running away from a new home is a painful and expensive exercise, but it is one that more people are doing today than ever before.

Just this week, bellwether builders Toll Brothers and Beazer Homes reported cancellations that were running way above the norm. Viewed as a percentage of contracts signed during the fourth quarter of fiscal 2006, Toll's cancellations were running at 37 percent compared with 18 percent during the same period last year.

The growth in people walking away is clear evidence that a recovery in residential real estate for most of the nation has yet to begin and that declines in general pricing have scared away some buyers who had locked in their home when building was still booming, experts said.

Miami-based Lennar Corp., Southwest Florida's largest builder, and Fort Worth, Texas-based D.R. Horton Inc. have reported that cancellations are now running at 30 percent nationally, or about twice the normal rate, said Patrick Newport, an economist with Global Insight, a Massachusetts-based economic research firm.

Jerry Starkey, chief executive of Bonita Springs-based WCI Communities, told investors this week that "home cancellations were about twice our historical rate" during the third quarter.

Newport figures that is about the average nationally, though precise figures are difficult to pin down because "they are not tracked by anyone."

He did an analysis recently that concluded "if cancellations were being counted, sales would be lower and inventory higher than currently estimated. How big of a problem are cancellations? No one knows for sure."

Most vulnerable are the "national builders, who sold homes for as little as 5 to 10 percent down," said Lee Wetherington, whose Lakewood Ranch-based company builds high-end custom homes and has yet to receive any cancellations.

Some builders made offers for $1,000 down or less and now are experiencing cancellations because the buyer has less at stake and sees new home prices falling below his or her own contract price.

"A lot of people are afraid of the fall off of pricing," Wetherington said. "Almost any builder now is pricing at 10 to 15 percent less than during the summer of 2005," including Wetherington's company.

"It's those people who signed contracts in the summer of 2005 who are the most likely to walk away," he said. "They bought at the peak," and are faced with closing now at a price that may be underwater for three years.

Bruce Williams Homes delivers about 350 homes each year in Southwest Florida. So far this year, the Manatee County company has had 10 cancellations, not a huge number but 40 percent more than prior periods, said Peter D. Mason, the company's vice president of sales and marketing.

Mason echoed Wetherington: "The

I think the headline next to the graph is pretty funny. Come on people lighten up! That nose-dive in HB confidence was arrested. Possibly indefinitely detained.
What do you want to see on the graph? some lack-luster, rather mop lookalike cat, tail pointing ominously straight down?
So buck up!
This was good news: no funny cat drawings at the end of the graph.