By Angela Gonzales | Phoenix Business Journal
Homebuilders in metro Phoenix face an alarming surge in contract cancellations at a time when economists are pointing to another recession.
Through the middle of July, the cancellation rate was in the 30% range, up from 8-10% in 2020 and 2021, and up from 15% in 2018 and 2019, said Steven Hensley, advisory manager for Zonda housing market research firm.
“Phoenix builders have experienced a noticeable uptick in cancellations in recent months and are presently near levels experienced during the onset of the pandemic and nearly double pre-pandemic levels,” Hensley said.
Cancellations in May and June mainly were a result of affordability and qualification issues, he said.
“The rapid rise in interest rates simply priced some homebuyers out of the market,” he said.
But since then, mortgage rates have stabilized, he said.
“Cancellations in July are more a function of consumer sentiment than qualification and affordability issues,” Hensley said. “Uncertainty surrounding the macro economy and inflation is leading to uncertainty in job security and financial stability.”
Meanwhile, construction build times have leveled out as the supply chain improved over the past few months, said Jim Daniel, president of RL Brown Housing Reports.
“The job and migration growth will continue to drive the new home market in the near future as the Phoenix market continues to attract new companies that see the area as a desirable area to expand or relocate,” he said.
Cancellations hit 48% in May for Richmond American Homes in metro Phoenix, up from 11% in January, Michael IlesCremieux, senior division president of Richmond American Homes, told a group of 300 homebuilders and real estate professionals in a Zoom event on July 28.
Even so, those homes were sold within days of being canceled, he said.
“There is a very healthy market out there, even in the face of everything we’re talking about,” he told the group. “Even though cancellations are elevated, there is incredible demand out there in the face of all the bad news.”
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