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The housing market is showing signs of accelerating, with home builder cancellation rates for new homes tumbling to levels last seen during the height of the pandemic buying frenzy.
A March survey by John Burns Research and Consulting found that builders reported an aggregate cancellation rate of 9% for purchases of new homes under construction. That's much lower than the peak of 24.6% reached in October 2022, and nearly in line with the 8% hit during the pandemic home-buying boom.
A slate of first-quarter earnings reports from top homebuilders have revealed a similar pattern of resurgent demand.
KB Home, for example, said its cancellation rate for the first three months of 2023 stood at 36%, down from 68% the quarter prior.
DR Horton and PulteGroup also reported figures that suggest stabilizing demand. DR Horton's cancellation rate in the first quarter of 2023 hovered at 18%, down from 27% at the end of 2022, while PulteGroup saw 13% of buyers cancel home contracts in that span, down from 32% in the previous quarter.
"As we entered the spring selling season during the quarter, we began to see an increase in [housing] demand," Jeffrey Mezger, chief executive of KB Home said in March. "This reflected in part the targeted sales strategies we deployed, together with a stabilizing mortgage interest rate environment. As a result, we achieved a sequential improvement in our net orders in both January and February, and net orders have remained strong in the early weeks of March."
To be sure, still-high mortgage rates, and elevated prices have kept housing affordability low. In March, the average mortgage payment for new applicants increased 1.6% month-over-month, Mortgage Bankers Association data shows.
Rates on the 30-year-fixed mortgage have stayed around 7% for months — data from Bankrate shows the rate is 6.83% on Wednesday — and that makes homeowners hesitant to sell, as it could mean financing a new home at a higher rate.
The MBA pointed to low inventory as a key culprit in the affordability dilemma, and that's unlikely to change anytime soon.
Real estate tracker Redfin said new listings of home for sale slumped more than 20% in April year-over-year, marking the steepest decline in housing inventory since the pandemic.
"The lack of new listings is driving an unseasonal decline in the total number of homes for sale," Redfin said in an April 28 report.
