By Dina ElBoghdady
Washington Post Staff Writer
Saturday, October 13, 2007

Comstock Homebuilding Cos. of Reston yesterday reported that even though it sold 81 houses in the third quarter, 78 sales were canceled, a net of just three sales in three months and a striking reminder of the building industry's deepening troubles.

"Market conditions have continued to deteriorate throughout the year," Christopher Clemente, the company's chief executive, said in a statement.

Ever since the real estate market softened more than a year ago, builders around the country have been stuck with too many houses and too much land in part because jittery buyers have canceled contracts frantically. More recent problems in the mortgage industry added to builders' worries by making it difficult for buyers to qualify for financing and by fueling a rise in foreclosures. That has contributed to a glut of homes for sale.

In the Washington region, the cancellation rate for newly built homes shot up to 48 percent in July and August from 18 percent at the comparable time last year, according to the most recent data from Hanley Wood Market Intelligence, a real estate research firm. The most dramatic rise was among condominiums, where the cancellation rate jumped to nearly 124 percent from 13.5 percent a year earlier, which means there were more cancellations of previous sales than there were new sales.

Clemente singled out mortgage market disruptions, which were at their worst in August and September, as a main contributor to his company's third-quarter performance. So did Atlanta-based Beazer Homes, which reported this week that net orders for new homes declined 52 percent in the quarter from a year ago. The company said the decline was driven by an "unusually high" 68 percent cancellation rate.

Most of the biggest builders have yet to release third-quarter earnings. But Bob Curran, the lead home-building analyst at Fitch Ratings, said he expected many would report higher cancellation rates.

Those rates are usually in the high teens to low 30s, but they have been well above average for most builders since the third quarter of last year, he said.

Comstock builds single-family houses, townhouses and condominiums in the Washington, Atlanta and Raleigh, N.C., metropolitan areas. It reported 717 sales and 199 cancellations in the nine months ended Sept. 30.

Many builders' strategy is to get rid of land, reduce costs and whittle down their supply of homes by cutting prices or offering incentives. Yesterday, Comstock said it had cut staff by 35 percent since last year and lowered production costs by 22 percent. Comstock shares closed at $1.83, down 9 cents or 4.69 percent.

Comstock said it expected to record charges related to a drop in the value of its inventory when it releases quarterly financial results Nov. 2. Yesterday, Dallas-based Centex, one of the largest U.S. builders, said it expected to write down about $1 billion in property in the quarter ended Sept. 30. Centex is to report earnings on Oct. 23.