Source: Yahoo! —
Speaking to reporters in September, Fed Chair Jerome Powell was asked to clarify what he meant when he said spiking mortgage rates would cause a housing “reset.” The meaning, he said, was that the U.S. housing market would slip into a “difficult correction.”
“When I say reset, I’m not looking at a particular specific set of data. What I’m really saying is that we’ve had a time of a red-hot housing market all over the country, where famously houses were selling to the first buyer at 10% above the ask even before seeing the house… For the longer term what we need is supply and demand to get better aligned so that housing prices go up at a reasonable level and at a reasonable pace and that people can afford houses again. We probably in the housing market have to go through a correction to get back to that place,” Powell said. “But from a business cycle standpoint, this difficult [housing] correction should put the housing market back into better balance.”
Of course, this so-called “difficult [housing] correction” has already arrived. Look no further than the latest earnings report by KB Home, one of the nation’s largest publicly traded homebuilders.
On Wednesday, KB Home announced that its buyer cancellation rate in the fourth quarter of 2022 spiked to 68%. That’s up from 35% in the third quarter of 2022, and up from 13% in the fourth quarter of 2021.
“Current conditions remain challenging. High mortgage rates and persistent inflation, together with an uncertain economy, have made homebuyers more cautious since the middle of last year. As such, in the fourth quarter, we prioritized delivering our large backlog and protecting our high margins over taking steps to stimulate additional sales during this seasonally slower time frame,” KB Home told investors on Wednesday.
Historically speaking, a 68% cancellation rate is off the charts. Even during the darkest days of the 2008 era crash, the average builder cancellation rate only reached 47%.
