Mortgage applications are falling close to 40% year-over-year, cancellations by property developers are on the rise, and builder confidence is at a 10-year low thanks to mortgage rates surging beyond 7%, according to Realtor.com. KB Home reported a 35% cancellation rate in the third quarter of 2022, while Lennar saw cancellations on 21% of its orders and Meritage Homes reported a 30% cancellation rate.
Some builders are offering discounts and incentives to buyers in order to complete sales, while others contending with big backlogs are offloading inventory into the build-for-rent market.
As a result, builders have had to get more creative with incentives, including rate locks, rate buydowns and upgrades on kitchen appliances, [John] Lovallo said.
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.”
While home builders are struggling, larger builders are “faring better,” he said, noting that a builder like D.R. Horton has better economies of scale. “They’re going to be able to buy commodities in bulk [and] have access to capital markets,” he said. “So the larger builders are absolutely in a better position.”
Advertisement
Related Stories
Design
See Interior Designer Bobby Berk's Latest Collaboration With Tri Pointe Homes
In an exclusive video for Pro Builder, interior design expert and Emmy-winning TV host Bobby Berk introduces his latest designs for Tri Pointe Homes
Forty Under 40
2024 Forty Under 40 Nomination Form
Help us recognize the rising stars, innovators, and game-changers in the housing industry!
Market Data + Trends
Housing Market Index Shows Builder Sentiment Continues to Rise
In March, builder confidence in the market for newly built single-family homes hit its highest level since July 2023