Sold -- or Not: When Home Buyers Walk

Gopal Ahluwalia, director of research for the National Association of Home Builders, said his group's surveys show cancellation rates increasing nationwide, but not as much as others have estimated.

His April survey of builders found that 5 percent reported a "substantially" higher cancellation rate in March than a year earlier and 14 percent a "somewhat higher" rate. Seven percent said they were seeing fewer cancellations. Twenty percent of those surveyed reported cancellation rates of more than 6 percent.

While some speculators have decided they won't get their return and are walking, other buyers are canceling because rising interest rates have made the purchase unaffordable, Ahluwalia said.

"Consumers are starting to get cold feet because they think prices are not going to go up, based on what they read in the papers and what they see in the media. But I think the biggest thing is probably the interest rate hikes and the fear that 'I can't afford this,' " he said.

Credit Suisse First Boston stock analyst Ivy Zelman this week said big builders nationally are reporting cancellation percentage rates in the mid- to high 20s, compared with the mid- to high teens of a year ago. Executives from Pulte Homes, for example, said in an April 27 conference call with analysts that cancellations reached 27 percent in the most recent quarter, vs. 18 percent a year ago.

Builders with high deposits, such as luxury developer Toll Brothers Inc., say their practices have discouraged speculation and have resulted in fewer cancellations -- about 8.5 percent nationally, company executives said in a conference call yesterday. Toll Brothers requires 7.5 percent in earnest money plus a deposit for upgrades.

While some deals may have turned sour for the original buyers, that can be heartening to those looking for bargains. Builders are offering more incentives to buy, including price cuts and free upgrades.

Zelman expressed confidence in the Washington market in the long term because of its job growth and limited availability of land but said: "It will take some time to blow out this inventory. . . . People have got to lower their prices."

Other analysts have also said the Washington market is in stronger shape than most urban centers because of low unemployment; strong job creation; and house prices that are low compared with California, New York and Boston.

"It is true that the resale market has softened and that the number of listings jumped to nearly triple what it was last year," said Kenneth Wenhold, director of Metrostudy's Virginia-Maryland division. "However, last year was an unusual situation, with very few units listed for sale, resulting in bidding wars on properties. Now sales are still strong, but buyers have more choices."

He said, "Metrostudy's most recent first quarter 2006 research indicates that the new housing market is still performing very well and is almost as healthy as spring of 2005."

His study found an 11.8-month supply of new-home inventory in the region, but he said the number is "misleading, since the vast majority of the supply consists of thousands of condominium units that are under development in Fairfax and Arlington counties in Virginia."

Remove condos from the picture, he said, and inventories drop to a more-normal 7.2-month supply.

Gregory H. Leisch, chief executive of condo research firm Delta Associates, said that Hanley Wood's 12.7 percent cancellation rate may be low because of how it is calculated and could be as high as 18 percent. "But that's not an alarming figure," he said.

In looking at 1976, 1983 and 1990, when the housing market experienced "its worst points, right after a go-go period, cancellations might be at 25 percent and we're nowhere near that today," Leisch said. "We've returned to the norm."

Hanley Wood's survey showed the Sacramento area with the highest cancellation rate, 28 percent, up from 2.6 percent in March 2005. Rates in Las Vegas, Denver, Phoenix and Orange County, Calif., also were higher than those in the Washington area.