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Homebuyers Are Changing Their Minds, Canceling Deals in Record Numbers

By Reade Pickert

The once-booming US housing market is sputtering.

Construction starts fell in July to the slowest pace since early 2021 as single-family homebuilding tumbled, according to government data released Tuesday. Meanwhile canceled deals rose as buyers continued to back away from the market amid rising mortgage rates, according to an analysis by Redfin Corp.

Contractors build the framing of a roof on a house under construction at the Norton Commons subdivision in Louisville, Kentucky, U.S., on Tuesday, Feb. 8, 2022. The U.S. Census Bureau is scheduled to release housing starts figures on Feb. 17.

After a pandemic-related housing boom forced builders to scramble to make enough homes to satisfy demand, high mortgage rates, elevated inflation and a deteriorating economy are now tempering sales. That’s left builders with a sizable number of unsold properties. 

The outlook continues to deteriorate. A report Monday showed homebuilder sentiment slid for an eighth-straight month in August, marking the worst stretch since 2007. While Home Depot Inc. reported better-than-expected earnings last quarter, it said customer transactions continue to fall.

Residential starts dropped by nearly 10% last month to a 1.45 million annualized rate from a revised 1.6 million pace in June, the government data showed. Applications to build, a proxy for future construction, declined 1.3% to 1.67 million.

Prices for commodities like lumber have eased in recent months, though builders continue to struggle to fill open positions, especially more skilled roles. Two-thirds of construction firms reported few or no qualified applicants in a July survey of small businesses. 

More housing deals are also starting to fall through. Roughly 63,000 agreements to purchase homes were canceled in July, equal to about 16% of properties that went into contract that month, according to Redfin. While deals fall through for a range of reasons in normal times, the percentage of cancellations has been ticking up as sales slow down and borrowing costs rise.

The government’s report showed single-family housing starts decreased 10.1% to an annualized 916,000 rate, the slowest since June 2020. Permits for one-family dwellings dropped 4.3% to a two-year low. Meanwhile, construction of multifamily dwellings fell to 530,000 in July.

Existing-home sales for July will be released Thursday, followed by new-home purchase data next week. 

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