Sacramento Cancellations Quadrupled in Q4

So what's with all the new home incentives in Sacramento lately? Well, the Wall Street Journal (via The Housing Bubble blog) informs us that new home cancellations in Sacramento quadrupled in the final quarter of 2005 compared with the prior year. Obviously the shrewd investors knew which way the wind was blowing after prices topped out in August.

With the housing market cooling, a number of people are backing out of their agreements to buy new homes, spawning some opportunities for bargain hunters. Typically, new-home buyers must sign a contract and cough up a hefty deposit. But that isn't stopping them from saying 'no thanks.'

It is particularly noticeable in many California markets and in Washington, D.C.; Phoenix; and Chicago. In Sacramento, Calif., for instance, the number of cancellations quadrupled in last year’s fourth quarter from the year-earlier period. The typical reasons: Buyers can't sell their current home, or they are having trouble getting a mortgage or fear that they may be buying at the top of the market...

In some cases, builders are selling completed homes at prices lower than those charged for units still under construction; in others, they are offering other incentives, such as free upgrades or builder-paid closing costs.

Unless you have a compelling need to move, "it's better to be prudent and wait," says Ivy Zelman, a housing analyst with Credit Suisse. "It seems as if the builders are going to get more aggressive and offer more discounts that will make it more compelling for buyers." In some cases, she notes, buyers who thought they had nabbed a good deal have been surprised to find their builder offering a similar home at a lower price a few months later.

The higher cancellation rates right now are particularly notable because they come at a time when new-home sales are slowing in many of these areas. That is the case in Sacramento, where cancellations have jumped in part because buyers have pulled back from purchasing higher-end homes amid worries that they may be buying at the "top of the market," says Jonathan Dienhart.