Some Phoenix homebuilders reported a spike in cancellations of new home contracts as the local housing market adjusts to less demand and more supply.
Over the last few months, the cancellation rate has jumped to around 30% to 35% in the Phoenix metropolitan statistical area, said Steven Hensley, housing analyst at Zonda.
“We have seen an uptick in cancellations in the new home market,” Hensley said.
The cancellation rates were low in 2020 and 2021 — around 8% to 10%, he said.
Three Phoenix homebuilders all said cancellation rates for new homes went up in the second quarter.
On July 27, Taylor Morrison reported its cancellation rate increased to 10.8% of gross orders from 6.4% in the prior quarter. A year ago, that number was 5.2%, the company announced.
PulteGroup, Inc. reported its cancellation rate was more than double — 15% — “compared with 7% in the prior year” period.
Richmond American Homes— another Phoenix homebuilder — announced a sizable spike in home sale cancellations.
“Cancellations as a percentage of beginning backlog increased 400 basis points to 9.7% from 5.7%,” the July regulatory filing said.
The filings report second quarter results from homebuilders.
“After several consecutive quarters of increasing prices and strong demand, we experienced a noticeable decline in sales activity in the second quarter of 2022,” said David Mandarich, the company’s president and CEO. “We believe this was a natural reaction to the rapid rise in mortgage rates and reduced consumer confidence that took place during the quarter, and one that will likely require some realignment by industry participants.”
Hensley said consumer confidence plays a big factor in the rise in cancellations.
Inflation concerns have driven potential buyers to think twice about getting into a long-term commitment, he said.
Cancellation rates going up are happening in other markets, too, Hensley said.
Inflation has hit a 40-year high — items such as food and gas have seen significant bumps in price.
“Things like that made a lot of buyers back out,” Hensley said.
The Phoenix area once was among the most affordable places to live in the Sun Belt with states that include Texas, Florida and Louisiana.
Now, more potential buyers have been priced out of the current housing market and more people are deciding now isn’t the right time to buy a home, Hensley said.
There is less competition and more options for buyers who aren’t priced out.
“We are getting back to a more normal transaction process.”
Overall, he said the market is recalibrating with less buyers and more housing supply.
“It doesn’t mean we are in a balanced market,” Hensley said. “Buyers are sort of feeling it out.”