Why Are People Canceling Contracts On New Homes In Texas?

North Texas home builders are seeing a surge in cancelations of contracts on new homes, triggering a drop in sales and pending sales and a record rate of increase in new home listings in local multiple listing services. 

June 2022 Texas new homes report, the 3-month moving average of active listings in the local MLSs in Dallas-Ft. Worth, Houston, Austin, and San Antonio jumped from 11,224 in April to 15,131 in June – an increase of 35% in 90 days., according to HomesUSA.com. 

Also in June, statewide pending sales were 4,379 versus 5,010. All four major new home markets in Texas – Dallas-Ft. Worth, Houston, Austin, and San Antonio – reported a drop in pending sales in June.

“The whiplash began in March of last year when Texas builders were caught flat-footed by the sudden and astonishing demand for new homes,” said Caballero. “Then while struggling with shortages and supply chain issues, builders pulled out all the stops to increase production, only to be whiplashed again by the sudden reduction in demand caused by cancellations due to rising mortgage rates,” said Ben Caballero, CEO of HomesUSA.com. “The result is an unprecedented and massive spike in active listings in the MLS over the last 90 days,” Caballero noted, adding, “Home building is a tough business.”

Caballero noted that according to Freddie Mac’s weekly mortgage market survey, rates went from 3.76% in the first week of March to 5.81% by late June. According to the National Association of Realtors, mortgage costs are now 30% higher than a year ago for home buyers able to buy a median priced home.

The HomesUSAreport shows an overall decline in new home sales statewide for the first time this year. The three-month moving average of Texas new home sales shows last month’s sales reported to Multiple Listing Services dropped to 4,098 from 4,300 in May. Home sales were down month-over-month in Dallas-Ft. Worth, Houston, and San Antonio. Austin was the only major market to report a very small increase in new home sales last month with 584 versus 581 in May.

The HomesUSA.com New Home Sales Index reports new home sales pace quickened last month as the 3-month moving average for days on market was 54.07 days, down from 55.38 days in May.

New home prices statewide also increased last month – a continuing trend. The 3-month moving average of new home sale prices in June was a record $458,448 versus $451,098 in May. The average new home price is up over $71,000 since June 2021, an increase of more than 18 percent, year-over-year.

“Despite all of the market challenges – from labor shortages to supply chain and delivery issues – Texas builders continue to show steadfastness and resilience in markets that still remain persistently strong,” said Caballero.

For more information, visit HomesUSA’s website.