Builders 'Shell-Shocked' From Cancellations?

Homebuilders are working through a second wave of sales cancellations, according to an industry management consultant who says most builders are "shell-shocked" and entering the year with no backlog of sales. "That is a bad omen for 2008," said Charles Shinn, president of the Shinn Group. The first wave started in 2005 when speculators started walking away from their deals, and there was a huge number of cancellations in 2006. The second wave started with the subprime meltdown last summer when lenders tightened lending standards and prequalified buyers couldn't close because lenders had changed the rules. The Littleton, Colo., consultant estimates that sales cancellations during the two waves total 250,000. "Builders seem to be feeling the worst is over," Mr. Shinn said, but they are "wondering when this thing is going to turn around." However, the banks have their problems, lending standards are tight, and inventories of unsold homes are already high and feeding on foreclosures. "I don't think the market is back yet," said the consultant, who lists 500 builder clients. He is also concerned that the economy may have entered a recession in December, which could delay a housing recovery until 2009 or even 2010.