As the housing market cools, builders are reporting that more people are walking away from contracts and from tens of thousands of dollars in deposits.In the Washington, DC metro area there is this information to report:
Wall Street analysts say the Washington market is among those seeing the highest percentages of buyers abandoning ship -- more than double last year's rate, according to one research firm, and perhaps as high as one in three new-home buyers in some places. And nationally, some big builders are beginning to report cancellation rates upward of 25 percent.
Hanley Wood Market Intelligence, a home-building research firm, this week said that its latest survey of builders showed that the can cellation rate for the Washington area in March more than doubled from a year earlier, jumping to 12.7 percent from 5.1 percent.As expected "People who are buying for investments rather than residences are the most likely to bail out, experts said. They reason that it would be better to lose a deposit than to go ahead with an investment that could lose value, particularly if builders are cutting prices in the same or nearby projects."
The survey shows the cancellation rate locally highest in Fairfax County, at 30.9 percent, compared with 0.8 percent a year ago.
Indeed some specuvestors ( investors who are really speculators) are losing huge amounts of money in the housing market.
Finally, "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"
Despite the pain of giving up that much money, some buyers are canceling to cut their losses because builders are pricing the same houses for so much less, Alexandria lawyer James C. "Beau" Brincefield Jr. said.
"I have seen people literally walk away from $125,000 deposits rather than go forward with the closing because the value of a house identical to their own was being sold by the builder for $100,000 less," said Brincefield, who is preparing litigation for buyers who want to sue builders to get their deposits back.
"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."