Mortgage applications are falling as buyers confront mortgage rates surging beyond 7%, and as a result, builders are seeing canceled orders and waning demand months into a full blown housing correction. Home builder confidence dropped for the 10th month in a row in October to a 10-year low, and builders like KB Home reported a 35% cancellation rate in the third quarter, up from 9% a year ago, MarketWatch reports.
In response to slower buyer traffic, builders are slowing their production rates and offering rate locks, rate buydowns, and upgrades on in-demand home features in order to sell completed homes.
Cancellations by property developers are also up, Lovallo noted. KB Home KBH, 3.46% 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, 3.52% 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.