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Home builders struggle to find buyers as cancellations by developers rise

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Selling a home is a tough time. This is also true for homebuilders, who have canceled orders and lost interest among would-be buyers.

“Mortgage applications are down nearly 40% year-on-year. People are clearly on a wait-and-see or pause,” said UBS’s John Lovallo.

As a homebuilder analyst said on an episode of MarketWatch: Baron live.

Confidence of home builders 10 consecutive months in October to its lowest level in a decade (excluding the start of the pandemic), according to the National Association of Home Builders. According to the association, as buyers consider mortgages, traffic among prospective buyers, a factor that measures trust, has dropped significantly. 7% or more.

Cancellations by property developers have also increased, Lovallo said. KB home

report The cancellation rate in Q3 was 35%, up from 9% last year.Renner Said 21% of orders are canceled, but Meritage Homes

report 30% cancellation rate. Ari Wolfe, chief economist at Zonda Research, said: murmured On Thursday afternoon, her data showed a 70% cancellation rate among Phoenix builders.

Being able to move into a home within 30 to 60 days helps buyers when prices are rising.

As a result, builders are rate-locked, rate buy down Upgrading kitchen appliances, according to Lovallo.

Did it work? “We are starting to see elasticity in demand, which is encouraging,” he said. “There is still a huge underlying demand for housing.”

Home builders are struggling, but big builders are “doing well,” he said, noting that builders like DR Horton have great economies of scale. “They will be able to buy goods in bulk. [and] We have access to the capital markets,” he said. “So the big builders are absolutely in an advantageous position.”

Additionally, a builder that provides spec house Homes built ahead of order or ready for first-time buyers can “compete with existing inventory in the market,” he said.

Being able to move into a home within 30 to 60 days also helps buyers if prices are expected to continue to rise. Building a custom home can take him six to nine months. But builders have to contend with massive backlogs and also need to move inventory quickly.

Some builders are offloading their inventory to agencies, who then put the units on the rental market. “The rental building market will become increasingly important,” he said. It won’t overtake the build-for-sale market, but it will “expand the pool of buyers,” he noted.

housing maker stocks The stock trades at a fraction of its book value, or about five times its earnings, Lovallo said.

Homebuilding is ripe for disruption

Robalo told MarketWatch that it’s time for home builders to look for innovation. “Fewer houses have been built in the last 14 years since the 2008 recession,” he said.

“The homebuilding industry builds homes today the same way they did 100 years ago. stick framing The house on the property is littered with timber,” said Lovallo. “Probably the only industry in the last 100 years where technology hasn’t been introduced.”

labor constraintsalong with bureaucratic red tape related to land and permits, all hamper the process of building homes, he added.

“The homebuilding industry builds homes today the same way they did 100 years ago.”

— John Lovallo, UBS Analyst

“There has to be some change in this industry,” says Lovallo. “But I think 10 years from now he will be building a house in a very different way than he does today.”

Builders are seeing an increase in cancellations, but buyers shouldn’t expect home prices to drop significantly, Lovallo advised.

Unlike the 2008 global financial crisis, when home prices fell by 30%, Lovallo expects prices to remain relatively stable. Other analysts, however, are predicting a significant drop from peak to trough.

In an Oct. 28 memo, Lovallo said people are likely to continue working from home “for the foreseeable future,” so house price gains may not slow significantly in the absence of external economic shocks. I wrote that there is

Thinking about the housing market? Write to MarketWatch reporter Aarthi Swaminathan ([email protected]).

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