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.”
Related Stories
Labor + Trade Relations
Construction Job Openings Rose to Third Highest Share on Record in December
The number of unfilled construction jobs at the close of 2022 was the third highest on record, and contractors could have even more difficulty attracting skilled workers in 2023
Builders
Does Rebounding Home Builder Confidence Signal an Upcoming Economic Growth Cycle?
Despite falling demand from priced out buyers, home builders remain optimistic about the year ahead, and experts say that rising sentiment may point toward a breakout year for a recovering economy
Housing Giants
Submit Your Company Info for the 2023 Housing Giants
Fill out the 2023 Housing Giants survey form to see if your company makes the cut in Pro Builder's list of the largest home building companies in the nation
