DHI Cancelation Rate 17-19%
Listening to the DR Horton conference call, the cancellation rate on backorders is at 17-19% and higher in Las Vegas, which they claim is low for the industry. On the housing start decline the firm said the important factor is that the big builders will take market share from the small builders.
The large companies have said this for a while, but it doesn't change the fact that the slowdown is a response to the oversupply that exists. A spokesman said they will close 400 fewer homes than expected in Las Vegas this year. "We're not happy with Denver," one speaker noted.
8 Comments:
My question is similar to Debs... when are they 'locked in' and contractually obliged to ‘close’ or make compensation? I know they can walk anytime up until construction starts… how about after construction starts? And what happens if the go past the point of no return and they can’t make the close? What then?
I haven’t heard a lot about these possibilities? Any ideas?
(How does that cancellation rate compare historically?)
I'm not sure, but 17% is high enough to question a "backlog" arguement. Your right, the buyers will bail in large numbers.
25% of their business is "interest only".
(when are they 'locked in' and contractually obliged to ‘close’ or make compensation?)
I think that varies state to state but generally the buyer can pull out prior to completion.
Sunny,
How could any builder pursue such actions against hundreds of individuals? The downpayments are small enough that any sane person would walk away, as Deb said, with little downside.
The backorders are an illusion.
About a year ago, I looked at some new homes in the $750k price range around San Diego. They were asking for $20,000 deposits. So it wouldn't be painless to walk away.
As I understand it most of these “contracts” are fairly similar if not identical. A deposit to buy a standard house with no options is maybe $500 bucks( depending upon where you are). This just gives you the right to buy the house once it’s finished. You can walk away without penalty and get all your money back once the builder finishes and calls you asking for the check. Technically, it is true that some deposits are partially/non-refundable but those only deal with added options over a certain amount in value. The deposit would also not likely be above $2000. In general lenders rarely take your deposit. Two things; first it creates ill will for cents on the dollar to do this. Remember they still have to sell the house! Second, if prices really are softening they would rather skip people in mass and cut prices to try to clear inventory as quickly as possible. They can’t do that if they are haggling with every Tom Dick and Harry over a few hundred dollars here and maybe a thousand dollars there. Just my two cents.
I would contend that even the $20,000 would be small change compared to the hit the speculators would take. Think of the property tax and interest in the first year alone.
$20K would buy you a decent used car. And remember, you can live in your car, but you can't drive your house.
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