Cancellations of real estate contracts increase in Kern County, Calif

As the real estate market slowed this past year, local home builders found themselves facing not just declining sales but an increasing number of buyers canceling contracts altogether.

Kern County's cancellation rate for single-family houses was 7.9 percent over the first six months of 2006, up from 0.4 percent during the same period last year, according to data from research firm Hanley Wood Market Intelligence.

But Kern is still doing better than many counties, said Patrick Duffy, managing director of consulting for the Costa Mesa-based firm.

Fresno's cancellation rate for the same period this year was 13.9 percent, and Tulare's was 17.5 percent, according to the study.

Other areas are seeing rates closer to 30 percent, Duffy said.

Cancellations are a problem facing builders across the state, said Alan Nevin, chief economist for the California Building Industry Association.

"The reality is that people who are in escrow and hear about other projects dropping prices want to stand back and watch and see if they're going to get a price drop," Nevin said.

The Central Valley is faring better than larger metropolitan areas because prices are cheaper here, Nevin said. The largest category of new home sales in Bakersfield is in the $300,000 to $350,000 range, and there's not much builders can do to drop prices at that level, he said.

McMillin Homes' Bakersfield office hasn't seen a significant increase in cancellations, said spokeswoman Vanessa Wigton.

Any uptick has come mostly from investors getting out of the market, Wigton said. Cancellations are typically triggered by people who can't sell their current homes, she said.

The impact of cancellations on developers varies depending on what building stage the house is in, said Hanley Wood's Duffy. Every day a house is complete but unsold, the developer must pay extra in land and construction loan costs, he said.

In May, the cancellation rate for Centex Homes' Central Valley division was hovering around 25 percent -- about double what it was the year before.

Centex spokeswoman Lissa Walker said the situation has since improved, though she didn't offer specific numbers.

Still, it's tough to sell homes that are nearly complete when buyers back out, Walker said.

They might have put in thousands of dollars worth of upgrades, making the house less affordable to other buyers, she said. And some make distinctive decorative choices -- like hunter green carpet -- that only to appeal to a small percentage of buyers, Walker said.

"Buying a house is a very personal thing," she said.